Electronically Stored Information And The Pending Federal Rule Changes: "If No Suit Is Pending, This Doesn't Affect Me Right?"

By now, most of us are aware that the Federal Rules of Civil Procedure will change in December 2006. These changes impose new requirements on counsel (both in house and outside) to become conversant and agile with electronically stored data. Counsel must become sufficiently aware of their clients' computer network systems to advise adverse counsel as to the existence, whereabouts and "producibility" of electronically stored information ("ESI"). Sounds simple enough. But what does this really involve, and why are people getting concerned about it?

Enormous monetary sanctions have been imposed by courts in the last several years, arising from a party's failure to act or failure to timely comply with regulatory or court ordered deadlines. In some cases, these failures have resulted in the imposition of adverse inferences, and billion dollar judgments. For example:

  • In Coleman Holdings v. Morgan Stanley & Co, Inc., a jury awarded a $1.45 billion judgment after the court issued an adverse inference instruction for defendants' failure to disclose discovery of 1,400 backup tapes and a "script error" in a search program.

  • In U.S. v. Philip Morris USA Inc, (D.D.C. 2004), the court imposed a $2.75 million sanction against the defendant for its continued e-mail deletion following a court order to preserve the information.

  • In Zubulake v. USB Warburg LLC (2004 WL 1620866 SDNY), a routine employment case was transformed into one of the seminal ESI cases, with $29 million fines and adverse inferences arising from defendant's failure to comply with a litigation hold letter.
  • So, the issues are real, and the exposure is substantial.

    But, what if there is no litigation or regulatory inquiry pending? Why should corporate counsel be concerned? Because after litigation begins most steps that will protect the company can no longer be taken and, for plaintiffs, preparing for litigation may be so burdensome that the business decision to protect legal rights through litigation may be affected by the electronic evidence tail wagging the dog. So, before litigation is ever threatened, take advantage and get your ESI house in order. Several practical steps will guide you and your company to function efficiently if that suit is filed.

    First and foremost, know your responsibilities as counsel and take steps to secure the information you will need. The Court in Zubulake laid out several guidelines that govern counsel's responsibilities. The Court made it clear that if counsel did not abide by these guidelines, sanctions may be imposed:

    1. Actively monitor compliance with litigation hold notices so that all sources of discoverable information are located and searched. It is NOT sufficient to simply advise a client of a litigation hold and expect the client to comply. Counsel must actively participate in the compliance methodology and practice to identify and produce responsive ESI. For in-house counsel, this means making sure that systems are in place so that litigation hold notices can be complied with.

    2. Counsel must become familiar with the client's document retention policies and computer network, including conversing with the clients' IT staff to fully understand the client's system and the location of potentially responsive information. For in-house counsel, this means you should be sure to have a clear and effective document retention program in place, so your litigation counsel will be able to assist you. Again, this should be completed before the new rules take effect.

    3. Counsel must approach all possible owners of responsive ESI and determine where they may have the information. It is insufficient to simply assume that all responsive information resides in individuals' corporate e-mail accounts; counsel should inquire concerning PDAs, IMs, home computers, etc. Counsel must also explain the preservation obligation, and requirements of compliance, and communicate directly with those key employees. While this burden falls on outside counsel, it will affect you internally. As in-house counsel, you will want to reduce the effect this inquiry will have on your business during litigation. Litigation already poses significant business burdens. The time to learn about your own ESI is now, when you have control, before you have a need to turn your company upside down because you've been sued, or need to bring a suit.

    4. Counsel must implement a litigation hold on ESI whenever litigation is either commenced or could reasonably be anticipated. This is a key directive, given the ease with which ESI can be destroyed before a litigation is actually filed.

    5. Counsel must consult with employees and IT professionals to ensure that electronic files are preserved in original format and that backup tapes are not destroyed or overwritten.

    For discovery in the 21st century, the simple inclusion of "e-mails" with other paper documents simply is not sufficient. Data is defined in a significantly broader manner. It includes all forms of electronically stored information, word and text messages, instant messages, voice mails, faxes, images and all forms of documents. Your IT staff are the keepers of this data. They understand how the company's network operates, where, how and for how long the information is stored, and how to retrieve it. They know where the backup tapes are kept, the rotation schedule, and what each individual user's preferences are for storage and retrieval. In many cases, they are the screeners of e-mails, they can access who visits porn sites, and who downloads movies and songs. Given the mass of knowledge you will need to acquire, you should commence early dialogue with your IT staff, and encourage regular meetings to keep abreast of developments in how the company's information is stored and otherwise handled.

    All data should be kept in accordance with the company's document retention policy. If you haven't done so already, you or your outside counsel familiar with electronic discovery should review your company's current document retention policy and determine whether it properly addresses ESI and its complications.

    Retention policies must take a broad and long-term view - here are just a few considerations:

  • How long are backup tapes retained and for what purpose?

  • Does the company's policy address backup tapes? Backup tapes are quickly becoming the most popular destination for adverse counsel seeking e-mails that are not readily recoverable.

  • Will backup tapes be kept for disaster-recovery only? If so, under what circumstances are backup tapes retained and for what period of time?

  • Are copies of the backup tapes stored offsite, or are they permanently destroyed?

  • What steps are being taken to sort through and consolidate the current inventory of backup tapes?

  • Does a policy and procedure exist that would allow that consolidation process, and does it adequately consider the possibility of litigation or regulatory compliance issues?

  • Does the policy address legacy tapes and how they are incorporated into the data scheme?

  • What is a realistic rotation plan and who needs to have input on those issues?
  • To put these issues into context, a recent survey showed that 75% of all corporate communications are electronic. Such communications include e-mail, voice mail, fax, cell phone and instant messaging. Copies of these communications can reside on any number of devices in any variety of environments. Thus, merely because one deletes a communication from his inbox does not mean that communication is gone. In fact, experts posit that one e-mail can generate as many as 14 copies in various locations.

    These communications are the centerpiece around which the rules and regulations are created. While attorneys are generally aware that e-mail communications are discoverable, few appreciate the extent to which we communicate electronically, and what type of information is discoverable from those communications. For e-mail, not only is the existence and text of an e-mail discoverable, but so is its metadata such as - who created it, when, who received blind copies, what was attached, when the attachment was created, and whether that attachment was later removed. A paper printout of an e-mail will no longer suffice to prove the creation date of an e-mail, or even whether that printout is complete. The electronic files in which the e-mail was created are the "best evidence" of all information about the e-mail, and the Rules are finally catching up to this fact.

    Once one realizes that this "other world" of information is available, a fight over substance can quickly shift to one over form - specifically, the form of production of ESI. At the very outset of a litigation or pre-litigation dispute, savvy counsel may negotiate the production of ESI in "native" format, the format in which the metadata is disclosed. Savvy counsel may also request specific ESI from an employee workstation, including Internet cache records, Word Perfect files and digital fax transmissions that can come through the Internet rather than a fax machine.

    Demands for information are limited only by imagination and practical skill. An aggressive plaintiff's attorney appreciates the mass and quality of information potentially available through ESI. That lawyer likely also knows that if the large corporate defendant cannot gather the information quickly enough, he/she will have a chance to dig through some backup tapes containing responsive ESI, but also containing privileged and other proprietary information irrelevant to the suit. While most such reviews are subject to a "claw back" provision, nobody wants adverse counsel nosing through their backup tapes and company information.

    Protect Your Company

    As mentioned above, prepare now, when there is no litigation pending. Shore up your document retention policy, review the backup tapes and policies governing them, and make sure your employees know how to use e-mail. Simple training sessions about appropriate e-mail and Internet usage not only educate employees, they also allow the corporation to show that it has acted reasonably and attempted to prepare for doing business in the digital era. Consider hiring e-discovery counsel to review your policies and procedures. If you have been served with a litigation hold, take it seriously, and consider asking a lawyer well versed in the area to assist in negotiating at the initial stages. As the new Rules indicate, much of the horse-trading that took place mid-stream decades ago, will now take place before the initial conference with the Court. Never was Benjamin Franklin's statement, "An ounce of prevention for a pound of cure" more apt.

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