Legal Issues Arising from ESI and the New “Virtual” Jobsite

by Jack Kowalski Chair, Construction Law Section, Burr & Forman LLP

The construction industry continues to benefit from advances in technology.  In addition to utilizing building information modeling (BIM) in design and coordination efforts, many construction professionals are managing projects on the “virtual” jobsite.  Current programs offer the ability to design, procure, schedule, clarify, approve, and pay for projects without the need for bulky rolls of blueprints and cabinets of project files.  GPS systems are being used throughout the project, most notably in various sitework activities.  Wireless technologies are continuously evolving, including the recent expansion of “cloud” services allowing every team member to share resources and information with immediate access.

The use of these various systems results in a massive amount of electronically stored information (“ESI”).  The information is spread across and between servers, desktop computers, laptops, tablets and smart phones.  The files themselves contain metadata that can describe how, when and by whom the files were created, viewed, altered, saved and deleted.  The speed at which this information is created, stored, shared, deleted and erased and the number of locations where this information is stored make it difficult to earmark and preserve.  When a dispute arises that results in litigation, the electronically stored information is often a gold mine for one side or the other spawning discovery disputes.  Courts have struggled to keep pace with these advances in technology to effectively referee the discovery process.  Although the Federal Rules of Civil Procedure were modified more than five years ago to address electronically stored information, the collateral damage arising from discovery disputes and costs concerning electronically stored information have become a significant issue and, in some cases, more significant than the underlying dispute.

ESI Discovery Laws
The five-year-old amendments to the Federal Rules of Civil Procedure focus on defining the breadth of ESI, timing for requiring attention to electronic discovery, distinction between reasonably accessible and not reasonably accessible stored information,  attorney-client privilege or work-product privilege preservation post production, and the so called “safe harbor” limit on sanctions.   Several states have adopted their own rules pertaining to ESI and some have substantially adopted the Federal Rules amendments.  However, all of these amendments essentially codified the general principal that ESI is just as discoverable as a more traditional paper file system.  This means that litigants can be exposed to sanctions from the Court in situations when discoverable information is “lost.”  However, unlike in traditional paper discovery disputes where the focus is on the intent of the party who lost discoverable information, in electronic discovery disputes, the focus is often on the means, methods and timing utilized rather than whether there was any evil intent.   Contractors should develop a reasonable and comprehensive ESI retention policy well before any sign of litigation is on the horizon and, once litigation is imminent, initiate thorough litigation hold procedures.  Contractors who ignore these steps and wind up in litigation could face harsh penalties levied by the court.

Example Cases and Sanctions
Companies are being sanctioned across the country for violations of ESI discovery rules.  The sanctions include monetary penalties, cost of discovery shifting penalties, discovery motion attorney fee awards, shifting the burden of proof from claimant to defendant, evidentiary bars, and adverse inference jury instructions. Some examples of cases in the Southeast include:

In a recent Tennessee case, the court held that a party has a duty to preserve electronically stored information it knows or should know is relevant to any present or future litigation and that the trigger date is when a party is put on notice that it has a duty to preserve evidence.   In Nacco, the defendant failed to take reasonable steps to preserve, search for, and collect potentially relevant information, particularly electronic data, after its duty to preserve evidence was triggered, which the court found may have resulted in the destruction of relevant evidence.  The court sanctioned the defendant by ordering it to reimburse the opposing party’s forensic examination costs.

A Mississippi court was faced with what it viewed as dilatory compliance with court-ordered production of electronically stored information which resulted in increased discovery costs to the opposing party.  The court ordered that those costs would be paid by the offending party and ordered that those monetary sanctions imposed by the order must be paid directly by the offending party and not the offending party’s insurance carrier.

One extraordinary measure levied by some courts is an adverse inference jury instruction, effectively signaling doubt to the jury as to a defendant’s otherwise good intentions towards ESI.  A plaintiff in Federal Court in south Florida sought an adverse inference instruction as the sole sanction for the defendant’s failure to produce all responsive e-discovery.  The court recognized that the requested relief was available in some circuits but declined to grant the requested relief due to an absence of bad faith.  The court pointed out that there are different types of adverse inferences and left open the possibility that a jury instruction deeming certain facts admitted or allowing a rebuttable presumption would still be appropriate.    In a separate Florida case a defendant moved for summary judgment based at least in part on the position that the plaintiff had no evidence to support its claims.  The plaintiff filed a motion to compel production of electronically stored information against the defendant.  The court granted the motion to compel and sanctioned the defendant for what it perceived as hiding evidence that may have supported the plaintiff’s claims by denying its motion for summary judgment.

The Litigation Hold
Except in extremely unusual circumstances, courts are not likely to accept the excuse that the files were erased if there was an obligation to preserve the data.  The cases vary in terms of the exact point in time the duty to preserve ESI is triggered, focusing on terms such as “reasonably foreseeable” and “reasonably anticipated.”  However, when the duty is triggered contractors should initiate an appropriate litigation hold on all ESI and should also take steps to initiate a similar litigation hold on third parties for whom the contractor may have a duty to notify.  The next problem facing the contractor is deciding the scope of the information that will be subject to the litigation hold.   Courts focus on terms like “relevant”, “related” or “likely to lead to discoverable evidence,” which makes it difficult to decide exactly what to cover with the litigation hold.  Consultation with experienced construction legal counsel is encouraged but developing a good electronically stored information policy now, well in advance of any litigation, will make implementation of the litigation hold much easier.

ESI Retention Policy
The details of an appropriate retention policy vary from company to company.  The starting point should be a thorough forensic evaluation of the ESI infrastructure with periodic updates each time a new system, software, device or “app” is implemented.  The evaluation should include where the information is kept, how often it is backed up, the medium on which the data is stored and how often it is deleted. A document retention policy can be developed from the forensic evaluation.  The policy itself should identify each source and type of ESI and address the frequency of backup (from none to nightly) as well as the extent of back up (from all versions to final version).  The policy should also address privacy, personal use and confidentiality.  The costs of preserving ESI is significant but this upfront investment will likely result in a more cost-efficient response to subsequent litigation and will certainly help contractors avoid the unintended and inadvertent sanctions levied by the court in a discovery dispute involving ESI.

This article appeared in the March 2012 issue of Dixie Contractor.

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