Electronic Data Discovery And The New Federal Rules - Is There A Safety Net For The Increased Litigation Risk?

Thursday, March 1, 2007 - 00:00

Introduction

On December 1, 2006, significant changes of the Federal Rules of Civil Procedure specifically directed to electronic discovery (E-Discovery) went into effect. Notably, Federal Rules of Civil Procedure 16, 26, 33, 34, 37, were amended to provide guidance and mandatory direction necessitated by the explosion of electronically stored information ("ESI").1 A cursory review of the new Amendments may suggest that the Amendments merely embody the "best practices" which have evolved from decisional law and think tanks.2 True enough, but the amendments read in their totality express underlying principles which mandate new practices. The amendments' architecture requires (1) early ESI self-examination; (2) prompt ESI preservation decisions; and (3) early, open and frank discussions with the opposition on both the preservation and production of ESI. Without significant attention to these new practices, litigants may face onerous expenses and costs, draconian sanctions, and litigation failures.3

Given the extremely broad definition of relevant information ("documents calculated to lead to the discovery of admissible evidence") and the almost unthinkable volume of ESI, corporate counsel is now under tremendous pressure to quickly issue preservation orders of the appropriate scope and then determine what components of that ESI will be searched for potentially relevant data. Further, counsel must also determine how to accomplish such searches, and then review and produce responsive data, with maximum efficiency and minimum expense. Counsel is now required under the new Amendments to make a series of nearly immediate judgment calls that may be subsequently questioned by the courts and opposing counsel. This series of judgment calls which counsel is required to make at the outset of litigation (even before the issues are joined in the pleadings) unavoidably creates risk. Worse, because of the transitory nature of electronic documents, there is likely no chance for a "do-over" if a judgment call is subsequently questioned. For example, what if a back-up tape or other ESI storage media located at some geographically remote subsidiary is not preserved, but two years into the litigation it turns out the former subsidiary's human relations manager's reports are suddenly relevant because that former human relations manager is now a division head at a sister corporation? Will the company be subject to sanctions? Will the Court issue adverse inference instructions to the jury?

The risk of future untoward consequences such as sanctions and adverse inferences can be minimized by following the procedures contemplated in the Amendments. First, as soon as the litigation hits, or another event triggers the duty to preserve data, do a thorough ESI self-analysis. Second, based upon your ESI self-analysis, make prompt preservation decisions, communicate those decisions to all necessary individuals, and make sure those decisions are properly implemented. Third, analyze the cost and expense of both your document preservation and the required search of your ESI locations for relevant data. Promptly schedule the Rule 26(f) conference and disclosure of your analysis and decisions. If the opposing side acquiesces to your decisions, then you will have a strong estoppel argument if ESI evidence is lost or can only be recovered at great expense. If the opposition does not agree with your preservation, search and production decisions, go to the court.

Step 1: The Initial Self-Analysis

One of the easiest mistakes to make when litigation arrives, or a preservation duty is otherwise triggered, is to underestimate the scope of the documents the opposition will request and which may be relevant to the defense of the case. A good exercise is to assign one member of the attorney team the role of playing the plaintiff (or the defendant as the case warrants) who is assigned the task of developing a list of categories of all documents the plaintiff may request or that otherwise may be considered relevant. A good practice is to list every issue in the case and then identify every potential custodian that may have touched documents related to that issue. This is not a simple exercise. Depending upon the available resources, make sure this task is attacked by a team at a minimum composed of counsel and the employees at the core of the dispute. Also be careful not to confuse "custodians" with "witnesses." A secretary is a likely custodian, but may be an unlikely witness.

Next, involve the IT Department. The locations of ESI for each custodian must be considered and documented: laptops, servers, Blackberries, home computers, network file servers, Exchange or other email servers, flash drives, discs in drawers, etc. The IT Department knows the network intimately. Sit down with an IT delegate and discuss the ways each identified custodian touches the network. You may find that IT knows of sources of ESI that have been overlooked, such as specialized databases. Each custodian must also be questioned regarding the possible locations of ESI (as well as traditional paper documents). This ESI Location analysis will produce an additional column to be added to the custodians and issue list.

Step 2: The Initial Preservation Decisions

The next step is both critical and difficult. What data of each custodian must be promptly preserved and by what methods? First a few basic rules: the hard drives of all core witnesses and custodians should be immediately preserved bit by bit. Make a "mirror image" of these hard drives. This will capture all the "active" data on the drive plus the deleted matter that has not been written over. Keep in mind that the delete command does not actually remove data from the disc; it merely allows the data to be written over and thereafter lost. Because the data resides on the disc until overwritten, it may be recovered relatively easily by various forensic tools. Don't forget the email and file servers. Make sure to take a full "snapshot" of the server, which essentially takes a picture of all the documents on the server at the time and will prevent the inadvertent loss of any relevant data. Issue destruction holds to all custodians and make sure the IT Department suspends any auto-delete functions. Sometimes email subsequent to the initiation of the litigation will be relevant. The snapshot and mirror images will obviously not capture newly created data. Additionally, all backup tapes that have captured data from the core custodians should be preserved. Put a hold on backup rotation.

The tougher question is what data to preserve outside the "core" group of custodians. Put otherwise, what is the scope of the "original" ESI that must be preserved? Is it sufficient to simply copy only the active data (e.g. the email in-box) of some marginal custodians over to a central server with the loss of some metadata and possibly relevant deleted email fragments? Or does a litigant have the responsibility to create mirror images preserving all the allocated and unallocated space on the computer hard drives of each identified potential custodian. The answer to this question requires judgment and will be determined by consideration of a number of factors:

1. What is the value of the case? The greater the company's exposure the more likely the company should make forensic bit stream images of the hard drives of each ESI custodian.

2. How concentrated is the relevant data? Even in a case of modest exposure, if the core data is potentially located with a few custodians then each of these should probably be imaged.

3. How dispersed is the data? If the potential data is disbursed over the desktops or workstations of potentially hundreds of employees, creating mirror images of each computer is likely not warranted.

4. How many custodians have touched ESI data? If there are numerous custodians who may have touched relevant documents or emails, but only in a peripheral manner, e.g. secretaries and file clerks, a full forensic image may not be warranted.

5. What is the likelihood that metadata and deleted emails or other data contained in unallocated space will be relevant to the case?

The key point to minimize the potential impact of future sanctions is to document your decisions. The risk of adverse sanctions is dramatically reduced if your decisions are based on an informed, reasonable assessment of value of the data and the expense of preservation, however, the last and crucial step remains.

Step 3: The Rule 26(f) Meeting And Disclosures

Counsel's biggest safety net is the Rule 26(f) conference. Viewed through the lens of E-Discovery, the Rule 26(f) conference takes on a dramatic importance. The Rule 26(f) conference is the principle disclosure point, and through disclosure, counsel obtains the maximum protection and risk reduction.

The Rule 26(f) conference must be the subject of thorough preparation. At a minimum, counsel must be prepared to discuss the opposition the following E-Discovery topics:

1. all locations of ESI (including backup tapes);

2. the kinds of ESI (emails, spreadsheet, digital voice, etc.);

3. the accessibility of ESI;

4. the cost of retrieving ESI;

5. the methods and searches for retrieving ESI;

6. the materiality and relevance of the various locations of ESI;

7. what ESI should be preserved in its original form;

8. the costs of preservation ESI (the cost of forensic images and back up tapes);

9. the form of ESI production.4

The Rule 26(f) conference should be undertaken as early as possible. Why? Because these disclosures will provide a safety net! If the opposition accepts your decisions regarding preservation, then the potential for any future sanctions related to deleted or lost information are dramatically reduced, if not eliminated. Alternatively, if the opposition challenges your decisions, remedial action can be promptly taken and the cost of such preservation can arguably be passed on to the challenging party. For example, if a decision has been made not to forensically copy each secretary's hard drive, and the opposition does not challenge this decision at the Rule 26(f) conference, a motion for sanctions based upon a future loss of data from the unallocated space of the secretary's desktop hard drive is likely to receive a poor judicial reception. On the other hand, if the opposition disagrees with the preservation decision, the matter can be promptly brought to the court's attention. If court action is not likely in the short term, the desktop can be forensically imaged with its cost potentially passed on the opposition later when the court rules the benefit of such preservation is so minimal that the cost should be shifted.

Conclusion

E-Discovery presents the specter of formidable costs and increased litigation risks. But, both costs and risks of E-Discovery can be dramatically reduced through the hard work of self-analysis, reasoned preservation, and Rule 26(f) disclosure. 1 Federal Rules of Civil Procedure, www.law.cornell.edu/rules/frcp/.

2 The Sedona Conference, www.thesedonaconference.org/

3 See e.g. Zubalake v. USB Warburg, 2004 WL 1620866 (S.D.N.Y July 20, 2004); Coleman (Parent) Holding v. Morgan Stanley & Co., Inc., 2005 WL 679071 (Fla. Cir. Ct. Mar 1, 2005 ); Coleman (Parent) Holding, Inc. No. CA 03-50-45 Al (Fla.Cir.Ct. Mar. 23, 2005).

4 See e.g. Local Rules for the United States District Court of Kansas, www.ksd.uscourts.gov/attorney/electronicdiscoveryguidelines.pdf.

William F. Hamilton is a partner in the Tampa office of Holland & Knight LLP, where he practices in the commercial litigation area. The author wishes to thank his Holland & Knight colleagues Sonya Strnad and Woody Pollack for their editorial assistance.

Please email the author at william.hamilton@hklaw.com with questions about this article.