Delaware Court Implements Guideline Regarding the Preservation of Electronic Information

The following post comes to us from Kevin F. Brady, a Partner in the Business Law Group at Connolly Bove Lodge & Hutz LLP, and relates to guidelines for preservation of electronically stored information issued by the Delaware Court of Chancery, which are available here. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

On January 18, 2011, the Delaware Court of Chancery became one of the first state courts to issue a guideline for the preservation of electronically stored information (“ESI”) (the “Guideline”). The stated purpose of the Guideline is a reminder to litigants and their counsel (inside and outside counsel) of their common law duty to preserve potentially relevant information to the litigation. The reason for the focus on preservation is that based on the Court’s experience, proper preservation can remedy many discovery ills that arise later in the litigation. Indeed, most courts would agree that glitches in preservation are often difficult to remedy after the fact.

Common Law Duty to Preserve

The Guideline, which is not a court rule, emphasizes the common law obligations that parties and their lawyers have with respect to preserving ESI. As stated in the Guideline, a party to litigation must take reasonable steps to preserve potentially relevant information (and that includes ESI), that is within the party’s possession, custody or control. The Court of Chancery, like many state trial courts, is considering the broader topic of discovery of ESI but it has not yet proposed any specific or comprehensive rules or guidelines as to the discovery of ESI. Indeed, there is a dearth of federal or state court rules dealing directly with a party’s preservation obligation, in part, because courts do not regulate pre-litigation behavior which is when the duty to preserve is normally triggered.

That does not mean that the practitioners and their clients who are appearing in the Court of Chancery should ignore ESI as part of the discovery process. Indeed, the Guideline encourages parties and their lawyers to meet and confer early in the litigation on the topics of preservation and discovery of ESI. Experience has shown that the more interactive the process in terms of discussing ESI early in the litigation, the less likely problems regarding ESI will arise later in the litigation. While not directly referenced in the Guideline, the underlying issue of ESI spoliation claims being raised toward the end of discovery (which either derail the resolution of the substantive issues in the case or cause serious delays in the progress of the case), is a concern raised by many federal and state court judges around the country.

Background of ESI Disputes in the Court of Chancery

One of the most important cases in 2010 discussing ESI was issued by United States District Court Judge Shira Scheindlin from the Southern District of New York. The Pension Committee of the University of Montreal Pension Plan v. Banc of America Securities, LLC [1] (“Pension Committee”). This case, which Judge Scheindlin titled “Zubulake Revisited: Six Years Later,” looked at preservation and spoliation from the perspective of the plaintiff in a securities case. In Pension Committee, after a stay was instituted pursuant to the Private Securities Litigation Reform Act, plaintiffs’ counsel did not focus issue a written litigation hold until three years later. Judge Scheindlin discussed in great detail the issues related to the plaintiffs’ failure to properly preserve potentially relevant ESI. This is important to Delaware practitioners because not only is Judge Scheindlin a very well respected federal jurist in the area of electronic discovery, preservation has become a significant issue in a number of cases in the Court of Chancery and Judge Scheindlin’s decisions in the Zubulake v. UBS Warburg LLC cases [2] have been reviewed and cited with approval in the recent electronic discovery decisions in the Court of Chancery


TR Investors, LLC v. Genger [3] involved a dispute in the Court of Chancery, where weeks after the case was settled, plaintiffs moved to reopen the matter and sought sanctions against defendant for intentionally causing computer “wiping” software to be installed and run on his desktop computer as well as TRI’s hard drives, destroying a significant amount of information. The Court of Chancery reopened the case and after a two-day hearing, found Genger in contempt because he had, through his agent, caused evidence that was on his computer as well as TRI’s computers (and which was subject to a status quo order) to be intentionally destroyed. In addition, the Court sanctioned Genger by, among other things, increasing his burden of proof, requiring him to provide corroborating evidence at trial (beyond just his own testimony), requiring him to produce certain documents to the plaintiffs that he had claimed were privileged, and awarding attorneys’ fees at a “suggested” level of $750,000. The case is currently on appeal to the Delaware Supreme Court.

In Beard Research, Inc. v. Kates, [4] the plaintiffs filed a motion for sanctions arguing that the laptop of an ex-employee was irretrievably altered after a duty to preserve relevant information from that laptop had been triggered. The Court of Chancery declined to enter a default judgment but granted a request to draw an adverse inference based on the missing evidence. [5] In addition, the Court ordered that the ex-employee and his new employers reimburse the plaintiffs for the reasonable attorneys’ fees and expenses incurred in prosecuting the motion for sanctions.

In Grace Brothers, Ltd. v. Siena Holdings, Inc., [6] the Court of Chancery granted plaintiff’s motion to compel emails among defendant directors. This action challenged a reverse stock split by Siena as a violation of Delaware corporate law. Grace Brothers asked Sienna to produce emails among members of Siena’s board of directors and Sienna not only refused to produce the emails, it said that “there was no need for the board of directors to search for the emails.” Sienna not only failed to identify or locate this information, it failed to preserve this information and it failed to meet its burden of showing that Grace’s document requests were improper or “unreasonably cumulative or duplicative.” Siena argued that it didn’t have to collect and produce the directors’ email because the company had already produced the relevant emails when they produced the sender-side versions. Additionally, Siena argued that “its process of asking the directors about their document retention and email communication practices was sufficiently reasonable to determine if the directors had unique copies of any emails already produced from other sources. It concluded that the directors did not have any unique copies.” The Court granted the motion to compel, finding that this request would not: (i) be overly burdensome; (ii) result in great expense for Siena; (iii) be duplicative; or (iv) harass Siena.

Key First Steps –Education and Collaboration

There are no “bright line” instructions in the Guidelines but there are some very good guideposts for channeling appropriate behavior. For example, the Court uses some very familiar phrases in the Guidelines such as “reasonableness,” “good faith,” “oversight,” and “good faith” All of these phrases underscore the need for a business process that is battle-tested, i.e., designed, reviewed, modified, implemented, audited and revised as necessary. And while the Guideline notes that “reasonableness” in the handling of ESI will be addressed on a case-by-case basis, the Guideline does identify some suggested behavior, starting with records management, for parties and their counsel to consider, starting with records retention.

Before any preservation can occur, indeed before litigation occurs or is anticipated, it is important for the party (and its counsel) to understand the Company’s records management protocol, i.e., the process by which information is created, edited, sent, received, stored and most important, destroyed. Once the records management process is understood, focus can shift to the preservation process which calls for the identification, preservation and collection of potentially relevant information. This includes identifying key players (and their assistants) as well as key custodians (and their assistants) in order to prioritize, if necessary, the preservation process.

Dissemination of Written Legal (Litigation) Hold Notice

The Guideline highlights the importance of written instructions (a “litigation hold”) being properly disseminated to individuals who might be in possession of potentially relevant ESI. Providing clear instructions for the identification and preservation of such information is critical. Here again the Court emphasizes the need for a “reasonable” process for disseminating the litigation hold (which process should include procedures for updating, amending or modifying the litigation hold as necessary).

Think Defensively — Document the Process

It is a good idea to document the preservation process for a number of reasons. To the extent that there is a significant lapse between the time litigation is anticipated or filed and the start of discovery (which was the situation in the Pension Committee case), the preserving party is able to review what was done to see if any changes or amendments need to be implemented. Also in term of potential evidentiary issues that might arise at the summary judgment or trial phase, the preserving party is much better prepared to address authenticity and chain of custody issues which could be of critical importance to their case.

Resources for Developing a Preservation Process

The Guideline does not mandate compliance with any particular process or procedure for the preservation of ESI. Interestingly, the Guideline acknowledges but does not recommend a practice that occurs in many cases around the country, which the parties or their counsel agree to limit or forgo dealing with discovery of ESI. The Guideline does identify the Sedona Conference and the “Conference of Chief Justices: Guidelines for State Trial Courts regarding Discovery of Electronically-Stored Information,” as two sources for guidance with respect to the preservation process. The Sedona Conference has issued a number of commentaries on the topics of preservation and ESI which are very instructional and highly regarded. Those commentaries include: the Sedona Guidelines: Best Practice Guidelines & Commentary for Managing Information & Records in an Electronic Age. The Sedona Jumpstart Outline and the Sedona Cooperation Proclamation. These and many other relevant papers can be found at the Sedona Conference website here. Another excellent resource is the Seventh Circuit Electronic Discovery Pilot Program, found here.


While the Guideline is short in length (only two pages) it speaks volumes in terms of the message it sends to practitioners and clients who are involved in litigation in that court. Going forward, a hands-off approach by lawyers and clients in dealing with the preservation of ESI will not be acceptable.


[1] 2010 WL 184312 (S.D.N.Y.) (Jan. 15, 2010).
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[2] See 229 F.R.D. 422 (S.D.N.Y. 2004); 220 F.R.D. 212 (S.D.N.Y. 2003); 216 F.R.D. 280 (S.D.N.Y. 2003); 217 F.R.D. 309 (S.D.N.Y. 2003); 230 F.R.D. 290 (S.D.N.Y. 2003).
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[3] No. 3994-VCS, 2009 WL 4696062 (Del. Ch. Dec. 9, 2009)
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[4] 981 A.2d 1175 (Del. Ch. 2009).
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[5] Id. at 1179.
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[6] No. 184-CC., 2009 WL 1547821 (Del. Ch. 2009).
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  1. By Delaware Corporate and Commercial Litigation Blog on Sunday, February 27, 2011 at 7:06 pm

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