Electronic discovery issues have been on the radar screen of every lawyer involved in litigation for several years now. This spring's decision in Coleman Holdings, Inc. v. Morgan Stanley & Co., however, raised the stakes considerably for noncompliance with discovery requests.
As has been widely covered in the press, a Florida jury awarded Ron Perelman $1.45 billion in compensatory and punitive damages in his lawsuit against Morgan Stanley. The judge in the case had issued a series of strongly worded instructions to the jury along with a partial default judgment shortly before the start of the trial. In press reports, this high-profile and controversial judgment was said to be largely the result of repeated discovery issues over the course of a year, which culminated in the company stating on the eve of trial that it had found records that it had previously said it did not have, but that it would take considerable time and money to search them.
This case is but one example - albeit large and high-profile - of the results of glitches in responding to a discovery request, particularly when it comes to electronic document retention, location of relevant files, and the searching of electronic records.
Proper handling of a discovery request, however, cannot begin when a request is made. It must start much earlier, with company executives working together to develop a litigation hold program and a plan for responding to discovery. Recognizing this need, the Sedona Conference1 has a special project team working on this very issue.
The process of developing a reasonable litigation hold program ranges in difficulty, depending on the company and the structure of its information technology system. For example, an organization with a single consistent, well-documented IT structure would have a considerably easier time in setting up such a program than would a company that has grown by acquisition over the years and whose systems vary by department.
Regardless of the degree of difficulty, however, preparation for document preservation and production is critical to reducing the cost and risk associated with litigation over the long term. To date, many corporations have depended on the advice of their outside counsel to determine what is and is not sufficient when it comes to discovery matters. This can raise problems, however, as it is often unreasonable to expect outside counsel to become intimately familiar with complex information systems.
Further, if the company has different outside counsel for different matters in litigation - as the vast majority do - they could very easily end up taking different approaches to discovery in different situations. If a dispute were to emerge over discovery in one of those cases, the inconsistent approaches and standards may put the company in a precarious position. The best defense in such instances is a consistent and reasonable retention program and discovery response system. Companies that follow different advice in different circumstances do not have this defense.
Modern computer systems produce vast quantities of data, much of which is the result of automatic functioning of the computers and their networks and is completely irrelevant to discovery requests or the underlying issues in question. Accordingly, it is not economically feasible, nor would it make sense, for a corporation to preserve absolutely everything. However, recent case law and changes to Federal Rules of Civil Procedure suggest that if a dispute arises and the company can demonstrate that the way it handled its records and responses to the requests in the matter at hand was reasonable and consistent with the way it has handled records and discovery requests in other matters, the likelihood of sanctions is considerably lower.
For this reason, it is in the company's best interests to establish an enterprise-wide records retention and litigation hold policy, and to train those people in its legal, IT, and records management departments in the policies and procedures designed to facilitate consistent and effective document preservation and production.
The foremost requirement for implementing any litigation hold program is the involvement of individuals from the company's legal, IT, records management, and compliance departments. Cooperation among these groups will help to ensure that all of the bases are covered when it comes time to enact a litigation hold on documents.
The legal department and the company's outside lawyers must be sure to fully understand the company's IT system, particularly the data retention architecture and the document retention policies. In Zubulake v. UBS Warburg, Judge Shira Sheindlin concluded in part that lawyers are obligated to ensure that all relevant documents are discovered, retained and produced.2 This is a tall order, and very intimidating to most attorneys.
In many cases, the corporate IT team will not sufficiently understand the litigation process and the discovery requirements to act as an effective translator for the attorneys. In those cases, perspective from an outside party who understands both technology matters and the litigation process can help provide lawyers with the confidence they need to have in their understanding of the company's IT system as it pertains to potential litigation.
For that reason, leading companies develop a strategic solution to discovery response planning. Typically, these companies assign accountability to an executive governance team that consists of representatives of the legal department, IT, business leaders, and records management. The team often includes outside counsel and discovery consultants, as well. Once this planning committee is assembled, the first step is to document the different information systems, the records that they may contain, and their operating and backup procedures. Based on this information, the company performs a gap analysis to identify strategic and tactical requirements to improve its ability to manage hold orders and document collection.
Finally, they develop the plans and take the steps to bridge the gaps. These solutions can include software to aid in document management, new procedures on how to issue and follow up on litigation hold notices, or even changes to the information systems structure or procedures to ease response to preservation orders.
All told, effective preparation for potential litigation holds includes:
When enacting a litigation hold, the first step is data preservation. Once litigation has been filed - or if the company has a reasonable expectation of litigation - it is the attorney's responsibility to take specific steps to ensure that all relevant data is held.3 It is also up to the attorneys to determine the definition of "relevant."
The most common approach to this is the "key player" approach, in which the lawyer determines which key people are most likely to have information relevant to the case or matter. These key people might include, for example, the senior people who worked on a project that has now raised some sort of legal concern.4
One of the first steps to consider when implementing a litigation hold is the creation of "forensic images" of identified custodians' hard drives. This is the only way to fully preserve the data residing on the hard drives. It may be prudent from the start to image the hard drives of those people who are most likely to be of interest to the matter at hand. It is not economically or practically feasible to image every employee's computer, so a line will have to be drawn somewhere. The Federal Rules of Civil Procedure provide for reasonableness in the demands placed upon companies to retain and search documents.5 Setting the scope for production is, again, a decision for counsel.
No matter how many hard drives are imaged, a hold notice needs to be issued to all people who potentially possess relevant documents, as determined by counsel in the context of the discovery request, or as negotiated with opposing counsel at the Rule 26(f) conference. The notice should tell them to preserve any information they have, in either paper or electronic format, that might be relevant to the issues in dispute, including network files, voice mails, hard copy documents, etc.
Based on recent cases, a simple hold notice is not sufficient for attorneys to fulfill their responsibilities when it comes to discovery responses. They also must follow up with the individual recipients to ensure that they are retaining the potentially responsive records. For those who do not respond to the notice, the lawyers may need to escalate their efforts to communicate the hold, for example, by placing a direct call to the individuals if e-mail messages go unanswered.
Additionally, the follow-up plan often includes interviews with the individual notice recipients. The interview would focus on how the person uses e-mail and other electronic tools so that the attorneys can ascertain whether the preservation notice, if followed to the letter, will result in the preservation of all potentially relevant information.
As the litigation proceeds, the lawyers will then collect the data that the individuals have retained in order to review it and eventually to produce those records that are responsive to the request.
The goal of this entire process is to increase efficiency in document production associated with litigation and to thereby reduce the company's - and the lawyers' - risk. This risk can take the form of cost associated with litigation as well as the potential for a huge judgment if errors occur.
If done correctly, an investment up-front of time and dollars to establish a plan and streamline data collection can save millions if not billions in litigation fees and judgments.
1 The Sedona Conference Working Group Series is the next phase in the evolution of The Sedona Conference from a forum for advanced dialogue to an open think-tank confronting some of the most challenging issues faced by our legal system today. The new special project team is a part of WG1: Electronic Document Retention and Production. WG1 is charged with the development of principles and best practices recommendations for electronic document retention and production. For more information, go to www.sedonaconference .org.
2 Zubulake v. UBS Warburg, 2004 WL 1620866 (S.D.N.Y. July 20, 2004).
3 Zubulake v. UBS Warburg, 2004 WL 1620866 (S.D.N.Y. July 20, 2004).
4 Zubulake v. UBS Warburg, 220 F.R.D. 212 (S.D.N.Y. 2003).
5 Fed. R. Civ. P. 26(c) ("undue burden or expense").
Eric Schwarz is the national leader of the Legal Technology practice within Ernst & Young's Investigative & Dispute Services practice. He is a participant in the Sedona Conference Working Group on Best Practices for Electronic Document Retention and Production. He will lead the Litigation Hold Special Project Team with Ashish Prasad from Mayer, Brown, Rowe & Maw and Elizabeth Cabraser of Lieff, Cabraser, Heinmann & Bernstein. David Wetmore, a principal in Ernst &Young's Investigative &Dispute Services practice, assisted in the writing of this article.