Mastering E-Discovery Strategies for Complex Commercial Disputes

Preservation obligations arise when a party knows or reasonably should know that information may be relevant to anticipated or pending litigation. This duty is separate from the obligation to produce documents in response to discovery requests; it requires that a corporation take reasonable steps to prevent the destruction or alteration of relevant data, even before formal discovery begins. In New York state courts, the duty to preserve is grounded in common law and reinforced by case law principles of fairness and prevention of evidence spoliation. A corporation that fails to preserve relevant information may face adverse inferences, sanctions, or even default judgment if the court finds that the failure was willful or in bad faith.

The scope of e-discovery is not unlimited. Courts apply a proportionality standard, weighing the burden and cost of producing electronically stored information against the likely benefit and the importance of the information to the case. For complex commercial litigation involving multiple parties and years of transactions, proportionality disputes are common and can consume significant resources. A corporation should be prepared to negotiate the scope of searches, the format of production, and the allocation of costs for restoring backup systems or searching through archived data. These negotiations often occur in meet-and-confer discussions before formal discovery orders and can set the tone for the entire litigation.

Once a dispute is anticipated, counsel should issue a legal hold notice to employees and departments whose records may be relevant to the dispute. The legal hold should identify the subject matter of the dispute, specify the types of information that must be preserved, and include instructions for preserving emails, documents, and other electronic records. The scope of the legal hold should be tailored to the specific dispute; an overly broad hold can burden employees and create compliance problems, while an overly narrow hold may miss relevant information and expose the corporation to sanctions. Documentation of the legal hold process, including the date it was issued, the persons notified, and the follow-up communications, is critical evidence that the corporation took reasonable preservation steps.

In complex commercial litigation involving large volumes of data, the cost of e-discovery can be substantial. Federal Rule 26(b)(2)(B) and New York equivalents allow parties to request cost-shifting, whereby the requesting party bears some or all of the cost of producing difficult-to-access information. A corporation should be prepared to provide the court with estimates of the cost and burden of producing information from backup systems, archived databases, or other sources, and to propose alternative search methods or sampling approaches that reduce burden without sacrificing relevance. Courts often look favorably on parties that make good-faith efforts to narrow disputes and to allocate costs fairly.

As a corporation produces thousands or millions of pages of documents and emails, the risk of inadvertently producing privileged information increases. Many litigations now include a clawback agreement, whereby the parties agree that inadvertent production of privileged information does not waive the privilege, and the producing party may request return or destruction of the information upon notice. Such agreements reduce the pressure on the producing party to conduct an exhaustive privilege review and allow the parties to focus resources on substantive discovery. However, a corporation should still implement a reasonable privilege review process, and should establish procedures for identifying and flagging potentially privileged communications so that they are withheld before production.

In the Southern District of New York and other federal courts in New York, judges often issue standing orders governing the format, timing, and scope of e-discovery. These orders may specify the file format for production (e.g., PDF, TIFF, or native format), the metadata to be produced, the schedule for rolling productions, and the procedures for asserting privilege. A corporation should obtain a copy of the judge's standing order early in the case and ensure that its production protocol complies with the order. Failure to comply with a standing order can result in sanctions, including monetary penalties or adverse inferences about the content of withheld documents. Courts in the Southern District also frequently hold discovery conferences to address disputes about scope, cost, and protocol, and a corporation should be prepared to present evidence of its preservation efforts and the reasonableness of its proposed search methodology.

E-discovery obligations must be balanced against data privacy laws and regulations, including the General Data Protection Regulation, the Health Insurance Portability and Accountability Act, and state data breach notification laws. A corporation may need to redact or segregate personal information, health information, or other sensitive data before producing it to opposing counsel. In some cases, the corporation may seek a protective order from the court to limit the use of sensitive information by opposing counsel or to restrict access to designated personnel. These compliance considerations add complexity to the e-discovery process and require coordination between litigation counsel, data privacy counsel, and information technology personnel.