Not every lawsuit comes as a surprise. Sometimes the filing of a court complaint is preceded by direct formal or informal threats of litigation, and other times, the threat is apparent from circumstances. When faced with a reasonable possibility of a lawsuit, a savvy business owner might take important, but obvious, steps such as creating a favorable paper trail, identifying important witnesses, and gathering all “hard” and electronic documents that might later help in court. What might not be obvious, however, is that the business also must immediately take reasonable steps to preserve all documents that might relate to any party’s claims or defenses in the suit – even if those documents are harmful. Failure to do so would be a terrible mistake.

The possible consequences of “spoliation,” the improper destruction of evidence by one who is in litigation or who reasonably should expect to be in litigation, generally fall into three categories:

  1. Discovery sanctions. A court may impose punishment “sanctions” in connection with its supervision of “discovery,” the formal pretrial process through which each litigant may obtain facts and information from other parties and non-parties to the suit. Courts typically are afforded wide discretion to impose sanctions on those who engage in improper discovery tactics. In extreme circumstances, in fact, a court might even (i) find certain disputed evidentiary facts to be “established” at trial in favor of the non-sanctioned party, (ii) dismiss or strike the sanctioned party’s claims or defenses, or (iii) enter judgment against the sanctioned party.
  2. Negative evidentiary inference. A court might instruct a jury to draw – or if there is no jury, the court itself can draw – a “negative inference” against a party who negligently or intentionally destroyed relevant evidence. That is, the court might instruct the jurors to assume that any relevant, but improperly destroyed, evidence would have been harmful to the document-destroyer’s case. In some circumstances involving more egregious misconduct, the court might even tell the jurors to assume that the party that destroyed the evidence did so out of awareness that he/she/it had a weak case. (Note that standards vary from state to state and between the federal and state courts.)
  3. Separate legal claim or defense. A separate legal claim or defense of spoliation is available only under the laws of certain states.

Making these threats even more perilous is the fact that there is no easy, fool-proof way to determine what documents must be maintained in any particular case. Not only do facts differ from dispute to dispute, but different courts (and different judges on the same court) are likely to draw lines at different locations. A highly respected opinion regarding the federal court standard says that an actual or potential litigant – while under no obligation to save every single document in its control or every single copy of the same document – does have

      “a duty to preserve what it knows, or reasonably should know, is relevant in the action, is reasonably calculated to lead to the discovery of admissible evidence, is reasonably likely to be requested during discovery and/or is the subject of a pending discovery request.”

Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 217-18 (S.D.N.Y. 2003) (quoting William T. Thompson Co. v. General Nutrition Corp., 593 F.Supp. 1443, 1455 (C.D. Cal. 1984)). If that legal jargon sounds like gobbledygook to you, you’re probably not alone. In fact, any entrepreneur who decides, without legal guidance, that certain documents are not “reasonably calculated to lead to the discovery of admissible evidence” or “reasonably likely to be requested during discovery” – and therefore are okay to destroy – is taking a tremendous risk of error.

The risk is even higher for businesses that regularly engage in periodic, routine destruction of hard and/or electronic documents. In order to protect itself from spoliation-related penalties, a business that learns of a potential lawsuit should immediately impose an internal “litigation hold” and notify its employees and document custodians of it in writing. This hold would effectively suspend the business’s normal document retention and destruction practice to the extent necessary to preserve lawsuit-related documents and would cover all company employees and contractors who are likely to have relevant information.

Spoliation is a very real issue, and it’s probably not on the typical business owner’s radar. When in doubt, err on the side of caution and contact an attorney before destroying documents.