E-Discovery: It's All About Preparation, Preparation, Preparation - Part I

Saturday, May 1, 2004 - 01:00

Part II of this article appears in the June 2004 issue of The Metropolitan Corporate Counsel.As we move closer and closer to a paperless world, multi-million dollar lawsuits will increasingly hinge on whether $40,000 per year network administrators understand and implement corporate document management policies properly. With that in mind, it is crucial that companies examine how they respond to the demands of e-discovery and come up with plans that fit an electronic world.

In recent years, the volume of electronic records companies create and maintain has exploded. These documents differ from traditional paper documents both quantitatively and qualitatively. Quantitatively, unlike a traditional file cabinet, a computer tape or disk drive can hold millions of pages of data. Companies frequently accumulate thousands of such tapes during routine storage, transmittal, replication, back up and archiving. Electronic documents are far less easily disposed of than paper documents. Finally, as technology changes, computer systems obsolesce and the recovery and restoration of legacy data presents a separate set of problems.

Qualitatively, while paper documents are stagnant, electronic documents are inherently dynamic and are designed to change, sometimes automatically. Unlike paper documents, some (like spreadsheets and e-order forms) may be incomprehensible when removed from the structure in which they were created. Documents in electronic form can be modified in ways that are undetectable without computer forensic techniques. Lastly, unlike paper, they contain metadata (i.e., information the computer uses to manage and/or classify the document) that is invisible to the user.

Concurrently, a plethora of forensic tools has become available which, when used by someone properly trained, can collect a wide range of unexpected data. They can enable the retrieval of seemingly inaccessible data, recover deleted data and email, and access password-protected and encrypted files.

Making matters even more complex, in this digital age, useful electronic data resides in a multiplicity of locations. Electronic communications are not only preserved on company backup tapes. Employee calendars are electronically stored on desktop computers and palm pilots, electronic task lists expose people's work days, cell and cordless phones handsets display and save the identity of people that called, security and access systems control who enters and create an electronic record of when people come and go. Pagers, fax machines, copiers, scanners, digital cameras and audio media, electronic game devices, and global positioning systems may all contain potential evidence. In other words, technology not only facilitates communication, it creates a distinct digital trail. Experts using forensic tools can gather that information. They may have the capacity to ascertain who communicated, what was discussed, when it occurred, who was privy to it, what documents were transmitted and what, if any efforts were made to erase or alter the record of the electronic communication. Thus, retaining unnecessary electronic documents and deleting documents that should have been preserved can have costly or even catastrophic consequences in the litigation arena.

Keeping What You Need And Getting Rid Of What You Don't

It is clear that the duty to preserve evidence may attach even before litigation begins. It is equally clear that the initial responsibility to assure that evidence is preserved falls squarely on the lawyer. In light of the proliferation of electronic documents and data, the need to act quickly is critical. Indeed, the failure to assure the preservation of such information virtually ensures that it will be destroyed as the result of innocent and routine practices. Electronic information is continually deleted, overwritten or recycled in the ordinary course of business. Moreover, something as simple as turning on a computer can alter the electronic information it stores. Destruction of evidence, even if inadvertent, can have costly consequences. For example, in the well-publicized case of Prudential Ins. Co. of America Sales Practices Litigation, 169 F.R.D. 598, 600, 617 (D.N.J. 1997), where senior management failed to implement a comprehensive document preservation plan and to distribute it to all employees in response to a court order requiring preservation of all documents and other records containing information potentially relevant to a litigation in place, the court imposed a stunning $1 million sanction. The lesson is that taking precautions before electronic information is destroyed or irrevocably altered is critical.

The first step is developing and implementing a sensible and effectual policy to govern the review, retention and destruction of both paper and electronic documents created or received in the course of business. The retention of some records is mandated by law.1 On the other hand, the imprudent retention of all records or, alternatively, the destruction of relevant documents are equally problematic and may both fuel costly, ongoing discovery battles in litigations that might otherwise be resolved economically. The failure to routinely destroy unnecessary electronic information creates enormous volumes of records that must be searched, sorted and reviewed in response to discovery requests. In fact, while courts will examine who should bear the cost of discovery where voluminous electronic records are involved, the general presumption remains that the expense of production rests with the producing party because it has control over how its documents are retained and stored. In addition, many files are created and deleted by applications or operating systems without the users' knowledge. Therefore, a routine destruction process must consider the fact that, when a file is deleted by a computer, the data actually remains on the hard drive. Over time, a large amount of potentially sensitive data may be left behind in random locations on the drive.

Alternatively, haphazard or eleventh-hour destruction of documents is equally dangerous. It can lead to claims of spoliation, i.e., the destruction or significant alteration of evidence or the failure to preserve evidence for use by another person in pending or future litigation. Where spoliation is found, the result may include sanctions, unfavorable jury instructions or even adverse judgments based on the presumption that the evidence was not preserved because it would have been unfavorable to the party.

In addition, a number of state and federal courts, including the District of New Jersey, have adopted local rules targeting electronic discovery.2 For example, New Jersey's new Local Rule 26.1(d) requires counsel, at the inception of a case, to review the client's computer and information management systems in order to understand how information is stored and how it can be retrieved and to review with the client, the client's information files, both those that are currently maintained as well as historical, archival, backup and legacy computer files in both current or historic media formats. The party seeking electronic discovery is required to notify the opposing party as soon as possible, prior to the Rule 26(f) conference, and identify the possible categories of information that will be sought. The parties are then required to confer and try to agree on discovery matters relating to digital and computer-based information, preservation, production, inadvertent disclosure of privileged information, necessity for restoration of deleted material, whether backup data is within the scope of discovery and who will bear the cost of preservation, production and any necessary restoration of electronic documents.

Developing A Policy

Advance preparation is the key to effectively managing the cost of responding to electronic discovery demands. It is also critical in any successful attempt to demonstrate to the court that the cost and burden of specific discovery requests should be shifted to the requestor. The first step is developing and implementing a reasonable document management and retention policy. Doing so requires considerable research and the involvement of legal, IT, administrative, human resources, library and executive personnel. To have maximum effectiveness, it should be a business initiative, supported by top management which is clearly documented and for which personnel are regularly trained. Routine adherence to that policy should be monitored, because it will be powerful evidence during any discovery dispute regarding the destruction of documents prior to litigation.

The policy should include clearly defined procedures for how and to whom the early warning signals of potential litigation threats should be communicated. It should also provide for collecting, preserving, reviewing and producing potentially responsive, discoverable information. For example, it should provide for a litigation response team which, when notified, can move quickly to identify and preserve all data that may be relevant onto a special litigation database server independent of normal system operations and backups.

Preserving And Collecting In-House Data

In order to accomplish that, the litigation response team - which should be comprised of outside counsel, corporate counsel, human resources, business line managers, IT, and, generally, a retained expert - should quickly identify affected personnel and communicate to them the need to preserve records and a description of the types of information that must be preserved. Generally, the preservation notice, which should be sent by email and hard copy, should not require the complete suspension of the normal records management policy. Rather, it should reach all employees reasonably likely to maintain relevant documents and should require preservation of only those documents described. The organization should also consider whether the notice should specifically address preservation in such locations as laptops or other devices and whether the notice should be sent to third parties, such as contactors and vendors.

Collecting the electronic documents such as emails, letters, memos, e-forms, and spreadsheets that are relevant to a pending dispute can be complicated and expensive, especially if not planned and carried out efficiently. The sheer volume of available information, its geographic distribution and the technical complexities of the systems on which it is housed create daunting obstacles. To overcome them requires understanding the technical landscape and developing an appropriate data retrieval plan specific to it. Because the plan's blueprint will be critical in helping the litigation response team set procedures for identifying and locating all data to be preserved onto the litigation database, it is critical that it be part of the document management and retention policy.

The next installment of this article will address collecting e-data in-house and from an adversary and how experts can help. In the meantime, if you don't already have one, develop your own document retention and management policy. Remember: no policy is a policy.1 For example: (1) time cards, time sheets, overtime records, etc.: 3 years (29 C.F.R. §516.5(a); ADEA (29 C.F.R. §1627.3(a); (2) employee earnings statements: 2 years (29 C.F.R. §516.6(a)(1); (3) payroll records: 3 years FLSA (29 C.F.R. §516.5(a); ADEA (29 C.F.R. §1627.3(a)); EQUAL PAY ACT (29 C.F.R. §1620.32 9(a); FMLA (29 C.F.R. §825.500(b)); (4) personnel files: 6 years after termination; (5) I-9 (immigration): later of 3 years after execution or 1 year after termination (8 C.F.R. §274a.2 (c)(2)); (6) injury records: 5 years OSHA and WORKERS COMP. LAWS (29 C.F.R. §1904.33 and 1960.73); (7) EEO-1 Reports: forever CIVIL RIGHTS ACT; (8) qualified plans, summary plan descriptions under ERISA: 6 years (29 C.F.R. §4041.5); (9) job advertising and internal job posting: 1 year ADEA (29 C.F.R. 29 C.F.R. §1627.3 (b)(1)(i), TITLE VII and ADA (29 C.F.R. §1602.14); (10) employment applications: 3 years FLSA (29 C.F.R. §516.5); 1 year ADEA (29 C.F.R. §1627.3(b)(1)(i)), TITLE VII and ADA (29 C.F.R. §1602.14); (11) applicant information for non-hires: 1 year ADA and TITLE VII (29 C.F.R. §1602.14, ADEA (29 C.F.R. §1627,3(b)(1)(i)); (12) reference checks: 6 years after termination; (13) FMLA request records: 3 years after leave has expired under FMLA, if lawsuit is pending, until lawsuit is resolved (29 C.F.R.§825.500(C)(2); (14) offer and hiring records: 1 year ADA and TITLE VII (29 C.F.R. §1602.14); 6 years common law breach of contract claim; (15) promotions, demotions and transfers: 1 years ADA and TITLE VII (29 C.F.R. §1602.14), 1 year ADEA; (16) layoff records: 1 year ADA, ADEA, and CIVIL RIGHTS ACT; (17) employee contracts/agreements: 3 years after termination EQUAL PAY ACT and FLSA (29 C.F.R. §516.5 (b)(3) and 1620.32), 6 years common law breach of contract claim; (18) employee exposure to toxic substances: 30 years after termination OSHA (29 C.F.R. §1919.1020(d)(ii); (19) employee terminations: 1 year ADA and TITLE VII (29 C.F.R. §1602.14 and 1627.3 (b)(1)(ii).
2 See E.D. Ark. Loc. Civ. R. 26.1; W.D. Ark. Loc. Civ. R. 26.1; Cal. Code Civ. P. § 2017; Ill. Sup. Ct. R. 201(b) and 214; Md. R. Civ. P. 2-504.3; Tex. R. Civ. P. 196.4; D. Wy. Loc. Civ. R. 26.1(d); D.N.J. Loc. Civ. R. 26.1(d).

Linda B. Katz, a Member of the Sills Cummis Epstein & Gross P.C. Employment and Labor Practice Group, has extensive trial, litigation, arbitration, and mediation experience which has included representing corporate employers in employment-related disputes.

Please email the author at lkatz@sillscummis.com with questions about this article.