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The Billion-Dollar Data Storage Error

By Elizabeth Charnock, Cataphora
July 26, 2005 12:00 PM ET

Computerworld - Wall Street banking giant Morgan Stanley recently suffered an adverse $1.45 billion court judgment, which contributed to a change in leadership at the top. The turning point? The judge's ruling that Morgan Stanley had acted in "bad faith" in failing to turn over relevant e-mails. "The storage folks found an additional 1,600 backup tapes in a closet," explained a Morgan Stanley executive.
Maybe Morgan Stanley was careless, or maybe it was unlucky. But if you think your organization is prepared to face a lawsuit, you may want to think again. The needs for evidence disclosure are very different from those of data or disaster recovery that most IT departments have in place. Now would be a good time to find out what your legal obligations might be. You should meet with your legal department, and to get the ball rolling in your conversation, here are five crucial questions you might want to ask:

  • What is our document-retention policy and how does that fit with current judicial expectations?

  • What are some of the potential liabilities to our company if we lose a case involving a large electronic discovery?

  • How strict are court-initiated deadlines?

  • What is spoliation, and how do I avoid it?

  • Why do I need to know what's in the data?

First, whatever your document-retention policy may be, it can be overridden by legal action, or even the prospect of legal action. In some cases, companies have been sanctioned for destroying documents, even though the destruction was consistent with a document-retention policy. One ruling stated that the company could reasonably have anticipated that the documents could be relevant to a lawsuit that was clearly foreseeable, even though no suit had yet been launched. Under those circumstances, the documents should have been preserved, whatever the document-retention policy might have said.
Second, keep in mind that the stakes in litigation can be enormous, far exceeding the cost of the related legal and IT fees. Not every case results in a billion-dollar verdict but, depending on the issue, your organization could certainly suffer a significant financial impact. Being a party to a major lawsuit can also affect business processes and share price. The more efficiently and effectively you deal with gathering and analyzing the evidence, the sooner such impacts will be eliminated. It's even possible that corporate officers or employees could be facing the prospect of jail time. Gathering the evidence isn't something you want to get wrong.
Missing a court deadline, depending on the nature of the case, could result in a fine of up to seven figures for each day

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