E-Discovery In Litigation: Proactive Steps To Reduce Legal And Financial Risks

Friday, December 1, 2006 - 00:00

As the amended Federal Rules of Civil Procedure take effect this month, companies without a proper litigation plan and documented records program in place will find litigation to be a complicated and expensive nightmare. A common concern among companies and their attorneys is the preservation and production demands of electronically stored information (ESI), which have caused e-discovery costs to skyrocket over the past several years. In fact, the costs of e-discovery are growing by over 50 percent annually and are expected to rise to nearly $2.5 billion by the end of 2007.1Other researchers (IDC, Forrester Research and Gartner) also project e-discovery costs in this range.

The intent of the rule changes is to address the changes in technology, channels of communication and record keeping. Ultimately, the amended Federal Rules of Civil Procedure establish methods and practices to prevent controversy over the discovery of electronic databases, email, backup tapes and other electronic data.2These rules are designed to promote fairness in legal proceedings.

Those companies that fully leverage a documented, systematic and enforced records policy across all media will find the amended rules are beneficial and reduce risks and costs associated with unstructured, unguided discovery demands.

What Is Discoverable?

Any information that a company owns is potentially discoverable. The newly amended Federal Rules of Civil Procedure present obvious challenges for those unprepared. For the first time, every corporation's records policies and levels of defensible, consistent enforcement will be clearly exposed for the courts and adversaries to examine and leverage. Most companies will not fare well because the majority of them vastly over-retain records, are inconsistent in their enforcement of record naming (taxonomy) and retention standards and do not properly execute routine, non-selective and appropriate records disposal practices.

Proactive vs. Reactive

Records policy development and enforcement is proactive and will cut e-discovery costs dramatically. Under good policy, records are clearly categorized, with ownership and whereabouts well-documented and up-to-date. Under strict enforcement, needed records are readily accessible, and legal hold orders are precisely and immediately placed and managed. Under strict enforcement, obsolete records are disposed of properly and unavailable to drive up collection, review and production costs, or to complicate litigation efforts or cause unmerited settlements due to the inability to find or afford collection efforts.

E-discovery, on the other hand, is reactive and, befitting any reactive yet certain event, some metrics are in order. Two related factors of e-discovery are collection efforts and document review efforts. But, sound preparation - in anticipation of these efforts - is critical.

Five Steps To Litigation Readiness

There are five requirements for corporate records management:

1. Companies must retain records long enough to meet legal and other requirements.

2. Companies must be able to access records quickly and efficiently during this period.

3. Companies must be able to enact immediate, precise and verified legal hold orders.

4. Companies must 'tag' records to other obligations (i.e., rapid discovery, privacy).

5. Companies must dispose of eligible records rapidly, routinely and properly.

These five requirements cover all record types on all media throughout the entire organization. Specifically in anticipation of e-discovery and the amended Federal Rules of Civil Procedure, we recommend companies take the following steps to be proactive in the event of litigation:

Determine all valid 'record types' that reside in email. This preparatory step can be completed within 45 to 60 days through an assessment or records profiling service.

Establish and approve retention standards for all record types held in email. Resist the notion that arbitrary '60-day' retention will have any validity under the new Federal Rules of Civil Procedure: It won't.

Dispose of email that does not need to be retained per the approved retention standards. Ensure that legal holds are properly applied before initiating disposal efforts. This is a serious legal obligation.

Impose strict policy enforcement. Implement a process to identify emails that are valid records and categorize in accordance with the approved record type naming standards. Discipline employees who over-retain or under-retain email records, save email records to unauthorized media (which is any media not controlled by the corporation) or violate email 'content-related' policy directives.

Ensure that potentially responsive record types from laptop and home computers, PDAs and other decentralized mobile devices are periodically reunited with the networks and audited. This is not the time for leniency - the legal, financial and publicity exposure is far more important than any employee's continued service with the corporation.

Cut review costs through use of effective technology. Implement email archiving to filter and de-duplicate non-responsive data, eliminate irrelevant record types and focus efforts on the variables that matter (specific people, date ranges and so on). Utilize sophisticated technologies to dramatically cut the costs of review, improve quality and speed up the efforts.

General Pre-Litigation Guidance

Establish and enforce a solid records policy as a proactive approach to litigation. E-discovery is not going away, and the ability to over-retain electronic records easily and cheaply will prove catastrophic to companies who cannot prove systematic compliance with this most critical corporate policy. Companies who do not enforce a solid records policy are perpetuating a cycle of reaction. With no strategic infrastructure improvement, ultimate costs and risks will only be realized as they are felt.

Determine whether to outsource e-discovery efforts or bring the competency in-house. According to Gartner, over half of companies employing e-discovery services will bring the solution in-house by 2007. The software needed to do this has become very cost-effective and simple to use. It is recommended that companies bring e-discovery in-house if they meet these three metrics:

1. There are 20 or more lawsuits filed by or against the company each year.

2. The annual litigation budget exceeds $2 million.

3. The annual e-discovery expense exceeds $300,000 (excluding attorney review).

Conclusion

Failure to prepare for e-discovery (or any discovery) can be devastating. Fines, penalties and sanctions have been imposed on companies for failure to produce needed records, while other companies have been forced into significant settlements due to over-retention of records or to avoid the incredible costs that full production would have imposed.

Most organizations are fully aware of the impact e-discovery will have from this point forward. The amended Federal Rules of Civil Procedure will put further pressure on corporations to manage their records better and be ready for the inevitable consequences of e-discovery success or failure. 1 According to the Socha-Gelbmann 2006 Electronic Discovery Survey. www.sochaconsulting.com/ 2006surveyresults.htm

2 Jones, Leigh. 'E-Discovery Zero Hour Approaches.' The National Law Journal. August 23, 2006.

Jeff Hatfield is a Senior Vice President at Jordan Lawrence, a niche consulting firm that has leveraged technology and proprietary benchmark standards that enable clients to dramatically reduce their legal risks and operating costs, improve compliance and make better systems and vendor decisions related to records and data management, document imaging, content management, email management and policy-development initiatives. Jordan Lawrence work impacts organizations in all industries and sizes, including the world's most prestigious companies, who use Jordan Lawrence solutions and partners to keep their records policies enforced, gather objective information for critical decisions and meet legal and regulatory obligations.

Next Steps

From our experience, a good way to be proactive in your efforts to reduce discovery costs and resource requirements is to start with an objective assessment of your organization's situation regarding records and information compliance and control.

An assessment should include a collection of records-related information for all company records on all media types (hardcopy, electronic, e-mail, etc.). Analyzing the collected information and comparing it against industry benchmark data and best practices ensures that you can confidently proceed with decision making and more cost-effective, sensible compliance and control initiatives.

An effective assessment should deliver information about every aspect of current and planned records policy and practice, such as:

• A clear understanding of your ability to meet the requirements of the amendments to the Federal Rules of Civil Procedure, along with specific initiatives.

• Regulatory, legal and compliance obligations with noted areas for improvement.

• Fulfillment of various regulatory and legal tagging obligations, such as retention, rapid discovery needs, privacy, secure disposal and so on.

• Ability to meet legal hold management obligations.

• Current levels of records policy awareness, enforcement and compliance.

• Current records usage, active-use periods, research and retention practices, for all record types, on all media.

• Current technology, systems and vendors used, along with future plans and initiatives.

• Records policy auditing practices and frequencies.

• Records usage patterns, including active-use periods, long-term retention practices, redundant retention and multiple version holdings, media migration and disposal practices.

In order to have a clear understanding of how all aspects of records policy and practice tie into all departments within the company, information should typically be gathered from four categories of participants from your company:

• Subject-matter experts who are internal experts about specific areas such as litigation support, e-mail management and administration, content management systems, offsite retention of records, digital-imaging practices and so on.

• Professional advisors who possess unique experience and knowledge of the organization's requirements regarding legal, tax, compliance and similar topics.

• Business advisors who are department-level managers or administrators who can identify and profile specific variables about record types held by their departments.

• Managers who have knowledge of the company's overall strategic records-related objectives and initiatives, which are compared to actual practices and decentralized plans and initiatives.

A comprehensive assessment of your records practices will aid you in the event of discovery as the amended federal rules take effect. This is a practical first step to ensure appropriate, sensible, knowledgeable decisions can be made, along with a road map leading to realistic actions to reduce risks, costs and compliance weaknesses.

For more information on conducting an Assessment for Records Initiatives, contactJordan Lawrence at (636) 821-2222 or visit www.jordanlawrence.com/ari.