E-Mail Retention: The High Cost of Digging Up Data

By Kim S. Nash Print this article Print

When encountering legal or regulatory action, technology managers who fail to get corporate data fast or vouch for its completeness can cost their companies millions of dollars. Learn what happened to WestLB, an investment bank, when it had to exhume 650,

In the cool air of a law firm conference room one day last summer in New York, conversation flares hot.

Hostile lawyers handling a sex discrimination case against investment bank WestLB shoot questions at Ken Bigelow, chief information officer at the New York branch of the German investment bank, which has $314 billion in assets. How does the company preserve e-mail? How often? For how long?

Lawyers for the plaintiff, Claudia Quinby, are fighting about which e-mail, instant messages and other electronic information WestLB should turn over to them. Quinby, a former saleswoman in the equities group, sued WestLB in U.S. District Court in New York in September 2004 for sex discrimination, retaliation and violation of the federal Employee Retirement Income Security Act.

She claims the bank discriminated against her because of her gender by cutting her bonus pay and that when she complained, it retaliated by wrongly firing her in June 2003. She was rehired three months later, then wrongly fired again in April 2004, she says in her lawsuit, filed just 17 days before her pension would have vested. WestLB admits terminating Quinby twice because it was "dissatisfied with plaintiff's performance," according to the bank's response. WestLB denies her other accusations. Quinby says she has lost pay and professional opportunities and suffered emotional distress.

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To try to prove their case, Quinby's legal team requested that WestLB exhume thousands of e-mails and documents from as far back as 2000 for key players in the case, such as her former boss, peers and human-resources managers. They sought messages containing anti-female language, for example, or online conversations to support claims that Quinby was excluded from key get-togethers and that WestLB violated laws in how it let her go.

At his deposition that July afternoon, Bigelow acknowledges he didn't know of Quinby's lawsuit until a few days earlier, when WestLB's in-house counsel told him to make sure no e-mail was deleted.

WestLB had recently started to collect electronic evidence for the case, according to court papers. Bigelow was there to explain the whereabouts of the company e-mail that Quinby demanded, and how the bank's technology systems were set up so that Quinby's side could assess for themselves what information might be available to them and how onerous it would be for WestLB to produce. He was questioned under oath for 2 1/2 hours.

On some points, the CIO doesn't have answers. When asked how long the bank keeps recordings of its traders' phone conversations, for example, Bigelow doesn't know. "It just slipped my mind," he says, according to a transcript of the proceeding. Who at WestLB would know, one of Quinby's attorneys asks. "I hate to say it, but you would call me. I just would have to look to find out."

He doesn't know which relevant e-mail for Quinby's former colleagues still exists in the company's Lotus Notes databases. Some messages may have been deleted by the people who sent or received them before nightly backups were launched, he explains. Others were likely overwritten, as WestLB had recycled backup tapes since 2001. Others disappeared when, in keeping with company policy, the e-mail accounts of departing employees were erased. "I don't think I could testify that all e-mails are in the database," he says.

Unfortunately, for CIOs in similar situations, the "I don't know" response ranks as the legal equivalent of "the dog ate my homework." Now that the Sarbanes-Oxley Act and other laws dictate that companies not destroy data records, e-mails and even instant messages are being used increasingly as evidence in high-profile court cases. Technology managers must get at their data fast and vouch for its completeness. Those who can't produce what the courts require on a timely basis put their companies at risk for fines or punishments.

It's already happening.

Across industries, big companies are scrapping with judges and regulators over data.

  • Philip Morris USA was ordered by a U.S. District Court judge in Washington, D.C., to pay $2.75 million in fines when it came out during federal tobacco litigation in 2004 that 11 managers didn't save printouts of their e-mail messages, as per company policy. As an added punishment, those managers were barred from testifying at trial, according to the order from U.S. District Court Judge Gladys Kessler.

  • Banc of America Securities, a brokerage arm of Bank of America, "repeatedly failed promptly to furnish" e-mail, compliance reviews and stock-trading records during a preliminary investigation in 2001, the Securities and Exchange Commission said. The brokerage also gave "misinformation" about its records and provided incomplete, unreliable data—some of it 15 months after first requests. In a 2004 settlement between the brokerage and the SEC, the SEC found the brokerage violated two Exchange Act sections and Banc of America agreed to pay a $10 million fine.

  • Last year, in a lengthy sex discrimination case against UBS Warburg filed in 2002, a U.S. District Court judge in New York found that the company deleted e-mail in violation of a court order and couldn't produce backup tapes. The judge told the jury they could "infer that the [missing] evidence would have been unfavorable to UBS." The jury decided against the bank and awarded plaintiff Laura Zubulake $29.3 million. Although UBS Warburg denied discriminating against her and said it would appeal, the bank settled the case last September for an undisclosed sum.

    What happened at Morgan Stanley last year, however, stands apart because of the huge judgment levied against it in a Florida state court. The investment bank repeatedly failed to turn over data related to a fraud suit last year brought by Coleman Holdings Inc., the owner of camping gear maker Coleman Co., according to an order written by the judge in the case, Elizabeth T. Maass. One of Morgan Stanley's technology workers concealed knowledge of 1,423 backup tapes, later found in Brooklyn, N.Y., when he certified that the bank had produced all its evidence, according to court documents. At least three other times, the judge said, the bank lost or mislaid backup tapes.

    Fed up, Maass took dramatic action. She read a three-page statement to the jury detailing the missteps—which included overwriting e-mails and using flawed search software that hampered searches of Lotus Notes messages. She told the jury to assume the bank acted with "malice or evil intent" unless it could prove otherwise.

    Morgan Stanley lost the case, big: The jury awarded Coleman $1.6 billion. The bank is appealing.

    More and more cases are going to turn on electronic evidence, says Richard Herrmann, a partner at Morris, James, Hitchens & Williams, a firm in Wilmington, Del., that specializes in business law. "This issue will become mainstream," he says.

    WestLB and company officials, through one of the company's lawyers, Dawn Groman Darringer of the firm McDermott, Will & Emery, declined to talk about the case.

    But in court documents, Bigelow predicted that collecting pertinent e-mail wouldn't be simple. In the end, the bank spent months digging through its IBM Lotus Notes servers, AXS-One broker e-mail archiving system, Bloomberg instant messaging service and more than 180 magnetic backup tapes, according to court filings.

    WestLB also had to enlist two vendors—document recovery specialist Kroll Ontrack and Hewlett-Packard—to help. Between them, they ultimately produced 650,000 pages of evidence, the filings say.

    Costs piled up. Bills from Kroll and HP came to more than $480,000. That doesn't include the cost of diverting technology personnel to collect tapes and live e-mail. Nor the bills from lawyers for reviewing each page, which at the height of the ordeal, one of WestLB's attorneys said in court, entailed 10 to 12 attorneys working days, nights and weekends last summer at a cost of $200,000 to $300,000 per month.

    Throughout, WestLB and its information-technology department found it hard to answer the basic question asked by opposing attorneys and, later, an exasperated U.S. District Judge William Pauley. In essence: Where is your data and why can't you get it?

    Next Page: Risks Are Rising for E-Mail

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    This article was originally published on 2006-08-02
    Senior Writer
    Kim has covered the business of technology for 14 years, doing investigative work and writing about legal issues in the industry, including Microsoft Corp.'s antitrust trial. She has won numerous awards and has a B.S. degree in journalism from Boston University.
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