New Federal Rules Favor The Well-Prepared Corporation

Thursday, February 1, 2007 - 01:00

The amendments to the Federal Rules of Civil Procedure addressing electronically stored information are now in effect and causing some consternation among corporate counsel. One fear is that opposing parties will use cost-prohibitive electronic discovery as a side issue to leverage settlement. While that may be true in some cases, the reality is that for many corporations the amended rules provide more advantages than disadvantages.

The purpose for the amendments is to reconcile the need for "just, speedy, and inexpensive" discovery as required by Rule 1 with the fact that corporations are creating and storing electronic information in unprecedented volumes. This capacity to generate and maintain information has created new burdens in discovery. Among these burdens are 1) the need for corporations to continue their business practices while preserving material relevant for anticipated litigation, and 2) the costs associated with locating, preserving, reviewing and producing relevant information. The well-prepared corporation may reduce or eliminate these burdens by taking the right steps.

Opportunity To Take Stock Of Corporate Information Systems

Rule 26(a) provides that initial disclosures must describe a party's electronically stored information. By requiring early attention to electronic discovery issues, the rules mandate that corporations assess their litigation preparedness. Although this initially will take time, money and effort, the assessment and resulting plan can be used as a roadmap for all future litigation.

The key outcome of any litigation preparedness audit is a document or records retention policy that includes the information necessary for Rule 26 disclosures. Not only will such a policy reduce the time and effort required to locate information each time litigation ensues, but it can also be an invaluable resource should the company need to seek the protection of Rule 37. Other valuable components of litigation preparedness - such as data mapping or relying upon document repositories - not only prepare companies for litigation, but also streamline overall business practices.

Recognition Of Normal Business Operations

Rule 26(f) requires the parties to discuss e-discovery issues early in a case. Judges will rely much more heavily on the parties to work out discovery issues and will have little patience for failure to cooperate. Cooperation has its advantages. For example, if parties can agree on the preservation parameters and methods for a given case, there can be no later accusations of spoliation. Moreover, participation in a frank conversation with opposing counsel will allow a company to negotiate the ability to continue its business operations in light of preservation and discovery obligations.

The Committee Notes1 state that during these discussions, the parties "should pay particular attention to the balance between the competing needs to preserve relevant evidence and to continue routine operations critical to ongoing activities" and that "complete or broad cessation of a party's routine computer operations could paralyze the parties' activities."

Cost Savings

Under Rule 26(f), the parties are required to discuss waiver of privilege and form of production. Consideration of these issues pre-discovery can result in tremendous cost savings. The single most expensive aspect of any discovery project is attorney review time. If the parties enter into "claw back," "quick peek,"2 or other non-waiver agreements, the reviewing party can evaluate its material in a more efficient, less expensive manner. The other party also reaps the benefit of receiving discovery responses on an expedited basis. An additional advantage of these agreements is protection from subject matter waiver which could cost corporations the case - or worse, multiple cases if related litigation requires production of the same or similar documents. The caveat here is that parties should have these agreements entered into an order by the court, due to the split in courts on the substantive law of waiver. Another caveat is that non-waiver agreements may not bind third parties.

Efficiencies and cost savings can also flow from up-front discussions related to form of production. If parties can agree on how each will produce information, document review projects can be planned with those goals in mind. Moreover, the parties can discuss whether metadata has to be produced. If both parties can agree that metadata are not relevant in the case, there will be no need to review those data for privilege, dramatically cutting down on the costs associated with privilege review.

All of the required discussions under Rule 26(f) will help a corporation identify any potential problems and pitfalls which, if addressed early in litigation, can prevent larger, more complicated and more expensive problems during the discovery process.

Control Of Accessible Information

Rule 26(b)(2) provides that information that is "not reasonably accessible due to undue burden or cost" need not be produced in discovery. This is a radical departure from the old rules, where everything had to be searched and produced if relevant. Although "accessibility" is not defined in the new rules, corporations have a tremendous opportunity to define accessibility for themselves, shaping their information retrieval systems to provide maximum efficiency. As long as these systems and their purpose are documented in a policy that ensures preservation if necessary, corporations will be well protected.

Corporations that have a clear archiving and backup tape policy will fare the best under the new rules. Archiving can be used to store day-to-day and historical information, while backup tapes can be used for disaster recovery. If litigation ensues, all information relevant to the business of the company and therefore relevant to litigation is in the archive system, accessible and easy to retrieve with minimal cost. Because the corporation does not use backup tapes in its day-to-day business operations, does not access them for business purposes, and because any relevant information captured on those tapes would be available elsewhere, i.e. in the archiving system, that information would most likely be deemed inaccessible.

By contrast, a corporation that does that not have an archiving system, but rather relies solely on backup tapes and individual users to capture important business material, may not be as well-protected. Courts that have relied on the proposed rules in their analyses of inaccessible data have been willing to allow discovery of backup tapes if the material is relevant, if the corporation does not have a records retention policy, and if the information is not available anywhere else.

Legacy data will likely always be considered inaccessible and a party need only identify - not search and retrieve - information that must be restored to a reasonably usable format. Although a court can order production of this material for "good cause shown," that will require an analysis of whether the burdens and costs of production can be justified in the circumstances of the case.

Protection Of Privileged Material

The parties' agreement in a 26(f) conference upon a procedure for the return of inadvertently produced documents can, if entered into by the court, offer corporations the best safeguard from disclosure of privileged information. If the parties do not or cannot agree, however, the new rules do offer some protections.

The new rules recognize that privilege review has become costly and burdensome in the electronic era and that even the most thorough of reviews still do not guarantee that privileged information won't be inadvertently produced. Under Rule 26(b)(5), there is a mechanism whereby privileged information inadvertently produced cannot be used or disclosed pending court determination of privilege. If the receiving party already disclosed the information to third parties, they must take reasonable steps to retrieve the information. The caveat here is that depending on the jurisdiction, the privilege may still be waived, but at least a court can decide the issue without the other party using the information it inadvertently received, and corporations and their attorneys will have time to frame an argument that privilege has not been waived.

A Safe Harbor For The Prepared

Some think that the "safe-harbor" provision of Rule 37 is not a safe harbor at all, but rather a trap for those who rely upon its protections. But because one purpose of the rule is to benefit corporations - by recognizing that the suspension of electronic information systems can cripple business operations - reliance is not misplaced for the corporation that comes to the rule prepared.

The rule states that "absent exceptional circumstances, a court may not impose sanctions under these rules on a party for failing to provide electronically stored information lost as a result of the routine, good faith operation of an electronic information system." There are therefore two requirements: "routine" operation and "good faith" actions.

Routine means that the system operates automatically or in a methodical way. For example, backup tapes that are recycled on a regular basis and in accordance with a records retention program would fall under this category because they recycle information without direction or input from users. If a party is prepared to go to court with a full understanding of the system and how it works, and can show that the system operates according to a company-wide policy, then routine is likely shown. "Good faith," however, may still require that companies have litigation hold procedures in place and a plan for preservation if necessary. The rule protects those who have made reasonable and good faith efforts to comply with their obligations under the rules but inadvertently lost information nonetheless.

Conclusion

While only a few courts have analyzed the amended rules, it is only a matter of time before judges begin to interpret their provisions. Although it is fair to say that not all courts will agree with a singular methodology or explanation of the rules, one constant is abundantly clear: Corporations that embrace the rules, act reasonably and in good faith will enjoy tremendous advantages and benefits not previously available.

1 Report of the Rules Advisory Committee, July 25, 2005. www.lexisnexis.com/applieddiscovery/lawlibrary/Excerpt_CV_Report_072505.pdf

2 A "quick peek" agreement is one where the producing party provides requested responses without waiving any privileges. The requesting party then requests certain designated documents it wants produced. A "claw back" agreement provides that documents inadvertently produced do not waive privilege as long as the producing party identifies the document inadvertently produced.

Courtney Ingraffia Barton, Esq. is Vice President of Industry Relations at LexisNexis Applied Discovery. She and her team work to educate the legal community on the continually evolving case law and technology of electronic discovery.

Please email the author at courtney.barton@applieddiscovery.com with questions about this article.