Delaware’s influential Chancery Court issues preservation guidelines likely to have wide impact

When Delaware’s Court of Chancery speaks, corporate boardrooms, executive suites and general counsel's offices pay attention. That's because Delaware, the second smallest state in the country, is the legal home of nearly a million businesses, including more than half of all US publicly-traded companies, and the Court of Chancery is the state’s most powerful judicial body when it comes to business law.

On Jan. 18 the Court of Chancery issued “Guidelines for Preservation of Electronically Stored Information” (ESI), a two-page document that because of Delaware’s unique importance is likely to have outsized impact on ESI policy and practices nationwide. This is the first time the court has ever issued guidance on ESI.

ESI is "front and center"
The court’s guidelines serve as a succinct reminder for lawyers that any party in litigation must move affirmatively to make all reasonable efforts to preserve ESI and implement litigation holds—and that ensuring this happens is the duty of the attorney, not just the client.

The guidelines provide that parties in litigation "must take reasonable steps to preserve information, including ESI, that is potentially relevant to the litigation and that is within the party’s possession, custody or control. ESI takes many forms, and may be lost or deleted absent affirmative steps to preserve it. [A]t the very minimum that means parties and their counsel must develop and oversee a preservation process" which should include "dissemination of a litigation hold notice."

The guidelines also indicate that "counsel oversight of identification and preservation processes is very important" and that reasonable efforts made to identify and preserve will be determined on a case-by-case basis.

"E-discovery is front and center. It’s cutting edge. The guidelines are meant to put parties on notice that ESI is covered in the gamut of civil procedure rules regarding discovery," said Scott A. Holt, a partner with the Wilmington, Del., office of Young, Conaway, Stargatt & Taylor.

"The most important point is the Chancery Court’s emphasis that you must have an attorney overseeing the entire process of ESI. In the past there was a lot of deference to the clients to preserve this information. The courts are now reminding attorneys of their duty to remain involved," Holt said.

"The point of the guidelines is that the parties to a case involving ESI need to collaborate together ahead of time, before they get before the court to discuss preservation, and develop litigation hold notices," said Jeffrey L. Nagel,  a business and e-discovery attorney in the New York office of Gibbons, P.C.

"It’s not new law, but it makes clear that the parties and the counsel have to develop the preservation procedures. There needs to be constant communication between attorneys, clients and now, the IT department," added Nagel.

Concern in the courts
In releasing its guidelines, the Court of Chancery joined an increasing number of jurisdictions concerned with the management of e-discovery that are taking steps to increase awareness of the lawyer’s duty to the client and the court  to preserve ESI.

"There is a need for specific court guidance beyond just what’s found in the case law. It’s an important court to have done this, along with the Southern District, California, and other courts," said Nagel.

The Chancery Court was already one of the first courts to implement an e-filing and online docket system for its civil division. With the growing prominence of preservation issues in the hundreds of thousands of disputes involving Delaware corporations and other businesses around the world, the court is called upon to hear and resolve questions involving e-discovery.

"Because so many attorneys come into Delaware and practice alongside Delaware attorneys, the new guidelines give them something to review when they get here," said Nagel. "Delaware is a big forum for counsel from around the country and being able to work from and point to these guidelines is helpful."

Read the complete guidelines.