Editor: What has been your practical experience with the current treatment of electronic discovery?
Donnell: We have seen rapid adoption by state courts and ADR panels of the federal court's evolving principles for the use of forensic recovery of electronic documents in a wide variety of business litigation cases. Judge Scheindlin in the Zubulake decisions discussed many of the principles that other judges and panels are now applying elsewhere with greater frequency and assertiveness. The result has been that even routine or small business cases are being complicated with issues like: Do electronic copies in native format (with all their metadata) have to be produced in addition to hard copies of discoverable documents in the ordinary course of document production? Does production have to be made in electronic searchable format, or can the documents simply be imaged or produced in hard copy? How far does a party have to go in recovering electronic documents from back-up media, servers or hard drives before the courts will actually order "cost shifting" of the sometimes enormous recovery costs to the requesting party?
Editor: What burdens, costs and risks does electronic discovery create?
Donnell: First, as you can imagine, the substantial cost and burden of recovering electronic documents from back-up media is usually left as the burden on the party who generated the documents, subject to the potential for "cost shifting" to the requesting party later in the proceeding by the court. If the relevant period of time to be searched is extensive, and the storage media or data is obsolete, a party will usually have to retain an outside consultant with the proper hardware and software simply to read and restore massive amounts of electronic documents so that that party is now at the "starting line" of the compliance process. Obviously that effort alone is expensive.
Worse still is the consulting and in-house cost in then sifting through (by both electronic and manual methods) the massive amount of recovered data to be able to swear that you have found all the still existing and responsive documents; and then that party still must bear the legal cost of having its counsel do the necessary privilege and relevancy reviews before actual production of documents can be undertaken. That, of course, only outlines the cost structure for producing the documents required from one party; then you have to contemplate the legal and consulting costs for forensically analyzing the electronic documents produced from your opponent's systems.
The real problem, on top of the cost and disruption of this electronic discovery process, is that in most cases one or both parties will discover that the other side did not preserve or produce documentation when it should have. This leads to an extremely expensive and risky sanctions fight and mini-trial on document retention issues that have little or nothing to do with the merits of the case. Most of the horror stories you have read about focus on the results from these "side shows" that then spill back into the merits of the case with adverse inference charges, sanctions and limitation of evidence rulings.
Editor: How common are sanctions proceedings?
Donnell: They occur surprisingly often. If one of the parties is an individual or is a small company that has limited exposure to electronic document retention complications, their counsel often sees the opportunity to "catch" the larger party with more difficult retrieval issues in compromising positions. Obviously many failures to timely retrieve or find back-up media, or to "ghost" servers or pull hard drives at the time a "litigation hold" was or should have been put in place, serve as ready fodder for the other smaller party to claim spoliation and sanctions. But before you conclude that this is only a "David v. Goliath" issue, remember that this can be used as a very effective tactic by well-organized business entities (with sound internal systems and sophisticated counsel and consultants) to seize upon the electronic retention and production errors of smaller business entities and literally win the case on motion practice unrelated to the merits. We have seen state court judges effectively terminate both large and small business cases by holding a sanctions hearing utilizing both fact and expert testimony. The more convincing experts and counsel can end up obtaining adverse inference rulings and sanctions orders that are extremely difficult to upset on appeal, and which essentially force the other side to settle with little regard for the actual merits of the case.
Editor: Do the courts have adequate guidance as to the current rules where electronically stored information is lost as a result of the routine "good faith" operation of an electronic information system?
Donnell: No. The U.S. Supreme Court in the Andersen case has endorsed the appropriateness of reasonable document retention policies that permit the overwriting of electronic data. However, the issue of the reasonableness of those policies is still left in factual limbo, thereby setting the stage for a battle between the experts in most cases. Furthermore, the dilemma is that the party disposing of the documents can usually be made to look sinister because the other side will always claim it was cheaper to retain the documents rather than to dispose of them. This is false logic given the enormous cost of actually recovering relevant and non-privileged documents from all that is or could have been saved.
Editor: Voice and instant messaging are becoming popular. What issues do they present?
Donnell: If the messages are retained in their electronic or digital format they could be held to be electronic documents which are also discoverable. Businesses should not permit their systems to store voice and IM messages, and thus turn those messages into long-term discoverable electronic documents, unless they absolutely need to do so for sound business reasons. If businesses go down that slippery slope they will find themselves in a quagmire that could be even worse than e-mail. Fortunately, businesses do have the ability to control their systems architecture. They should ensure that voice mail and instant messages are not backed up or stored at all if they are not needed.
Editor: Is there lack of guidance with respect to the production of electronically stored information that is not reasonably accessible because of undue burden or cost?
Donnell: Yes, even under the new amendments to the Federal Rules, there will still be an issue for courts to decide, based on a battle of experts testifying before them, as to what was reasonable or unreasonable in terms of the burden and cost for recovery of inaccessible electronic data. Proposed Rule 26(b)(2)(B) says that on a motion to compel or prohibit production of inaccessible data, there must be a showing that the information "is not reasonably accessible because of undue burden and cost." Even if there is such a showing "the court may nevertheless order discovery from such sources if the requesting party shows good cause." All the requesting party needs to do is show "good cause" and the other party must produce data that is not even reasonably accessible. The new rules address the issue but they don't solve the problem.
Editor: Will the proposed changes in the Federal Rules help the federal courts address these issues in an appropriate and consistent way?
Donnell: Yes, they are certainly a start. Proposed Rule 26(f) is particularly helpful. This requires the parties to sit down together before discovery begins to discuss e-discovery and to agree on some form of procedure or protocol to govern discovery of electronic documentation in the case. The Rule provides that the court will then enter an order requiring that agreement to be followed.
Editor: Are judges limiting discovery when overly broad? Do they shift costs to those demanding broad discovery?
Donnell: Although the disputes dealing with electronic documentation have brought this issue into focus, judges still tend to permit broad discovery. They rarely shift costs to the party seeking overly broad discovery, except when sanctions can be imposed. The new amendments and the Zubalake principles at least start the process of generating a structure for reversing this tendency of courts to leave the parties where they are when it comes to incurring unreasonably high discovery and compliance costs. Although the amendments concern electronic discovery, they may make it easier to argue for shifting the costs of paper discovery as well.
Editor: Given the fact that the costs of litigation have soared as a result of e-discovery, describe how you and your firm use ADR to reduce litigation costs?
Donnell: We use forms of mediation to resolve disputes or at least to sharpen and narrow the issues before they go into litigation. The role of arbitration has been called into question by many businesses because they feel that arbitrators are bound by no rules of evidence or procedure, there are no enforceable requirements for the arbitrators to apply applicable contract clauses or case law, and there is no practical opportunity for appellate review. What we have been doing to get businesses more comfortable with arbitration is to use Limitations on the Submission to arbitration so that the arbitrators are required to apply rules of law or contract or rules of procedure and evidence. We have imposed prohibitions against electronic discovery of any kind in disputes of smaller value, and put express limitations on its use even in larger cases. If the arbitrators don't apply such rules, the arbitration award will be subject to vacatur for violating the submission to arbitration. This helps businesses have more confidence that the rule of law will be applicable to the arbitration process at least to the extent of the Limitations on the Submission.
Brian J. Donnell is a Partner and Chair of the Construction Practice Group of Brown Raysman Millstein Felder & Steiner LLP and practices out of the firm's Hartford and New York offices.