If you are in business long enough, the chances are pretty good that you’ll become involved in the occasional dispute with buyers/ sellers, competitors, employees, a former business partner, or anyone else who you happen to have interacted with. How you prepare for and handle these disputes has a great impact on the health and long-term viability of your investments and company.

‘Electronically stored information’ (“ESI”) is the general legal term used to describe business information you may generate and store, such as documents, data, business records, and communications including texts, emails, social media posts and more. Often, ESI is a crucial part of the evidence that courts (or juries) will use in adjudicating business disputes.

Once you are involved in a dispute and you should reasonably be able to foresee that the dispute could result in a lawsuit, you have an obligation to preserve any ESI that you know, or that you should reasonably know, is relevant to the dispute. If you fail to preserve that information, you could be subject to a claim from another party that you spoiled important evidence (“evidence spoliation”) and potential resulting detrimental sanctions from the court hearing your case. The court could sanction you in three different ways. First, the court could instruct the jury that it may draw a negative inference against you because you failed to preserve the ESI. Second, the court could exclude your witness testimony about the ESI, even if the lost ESI would have benefited you. Finally, the court could dismiss part or all of the lawsuit that relied on the evidence. In short, your failure to preserve ESI related to the dispute could result in a negative outcome in court for your business.

Depending on how much ESI your business creates, preserving ESI can be very costly. So, many businesses keep ESI for a limited amount of time before discarding it. One of the great challenges for a business involved in a dispute is knowing exactly what ESI may be relevant, and thus should be retained, and what ESI can be discarded. It is not uncommon for a party in a dispute to receive notice from the opposing party that they are to retain every bit of ESI based on the potential for litigation. That puts the business owner receiving that demand in the unenviable position of feeling obligated to preserve all ESI, often at great expense, for fear that under-preserving could result in the harm outlined above. Up until recently, not much had been done by the Arizona Supreme Court, or any other court in the United States, to provide direction on what ESI needed to be preserved.

Some good news: you no longer have to hold onto all of your ESI for fear that a court could eventually say that some obscure text message from years ago may have some relevance. Instead, a recent rule change means you can now get an order from the court that spells out what specific types of ESI must be preserved. With that in hand, you can then discard the remaining irrelevant ESI without fear of negative consequence. On July 1, 2018, a new rule, Arizona Civil Rule 45.2, made it so that, if utilized, the confusion, expense, and risk related to ESI preservation (and the related risk of an evidence spoliation claim) can be minimized. Specifically, Rule 45.2 makes it so that, when litigation occurs, or appears to potentially be on the horizon, you can get an order from the court detailing exactly what ESI you need to preserve. In short, so long as you preserve the court’s ordered range of relevant ESI, there is no risk of sanction for spoliation.

In today’s litigious society, and taking into account the incredible amount of electronic data we produce on a daily basis, your ESI will almost inevitably become important either in one of your disputes, or in one to which you are a third party. Having an attorney that understands the nuances of upcoming Rule 45.2 can save you the stress and uncertainty associated with preserving evidence and can increase the likelihood of a positive outcome for your business by helping you to avoid costly sanctions.

If you need assistance in resolving a business dispute or if you wish to consult with an attorney to take proactive steps to avoid potential ESI pitfalls, please feel free to reach out to Phocus Law by phone at (602)457-2191 or by email at mick@phocuscompanies.com.

By Michael J. “Mick” McGirr, Phocus Law