RISK MANAGEMENT -- E-DISCOVERY ISSUES
| Jurisdiction | United States |
(May 2008)
RISK MANAGEMENT -- E-DISCOVERY ISSUES
Law Offices of Roxanne Armstrong
Houston, Texas
While there has long been a duty to identify and preserve documents related to any pending or anticipated litigation, and a separate duty to assure a complete search is made to find those for production in a lawsuit, a series of court decisions starting around 2003 severely sanctioning companies for failure to retain and/or produce electronically kept information, which resulted in huge verdicts, some with massive punitive damages, brought home to most attorneys and their clients the necessity of having (1) enforced written records management policies and systems, (2) effective, documented litigation hold policies and processes, and (3) having thorough document retrieval and production procedures. Looking at the recent court decisions, the Courts have clearly sent the message that both the companies and their counsel bear responsibility to assure that all documents, including electronically stored documents, are preserved once a preservation event is triggered, and a thorough search to locate all such documents must be undertaken. Qualcomm, cited below clearly cautions that duty cannot be shifted to outside counsel, although outside counsel may also be separately sanctioned for failures. Because sanctions can be granted by a court, even for a simple negligent failure to preserve or produce documents, a company's credibility and exposure in a lawsuit can now turn on whether all potential discovery was preserved and/or produced. Some litigants or their counsel specifically gear up to target and exploit a company's failure to enforce document retention and litigation hold policies, and thoroughness of seeking out all possible evidence. While there is no bulletproof approach, companies must address and manage these issues in analyzing litigation risk. Indeed, this author has been advised that some outside auditors of public companies are now auditing document management and retention and litigation hold procedures and polices.
Effective December 2006 the Federal Rules of Civil Procedure were amended to specifically address electronically stored information, but these amendments give little guidance on exactly what must be retained, and what a company may destroy. While distinctions are made about production of "accessible" and "inaccessible" electronically stored information, the Advisory Committee comments make clear the distinction has nothing to do with whether the documents must be preserved. Litigants must identify and determine what electronically stored information (as well as hard copy documents) must be preserved on a case by case basis, understanding that their decisions will be judged in hindsight with potentially severe sanctions if they are wrong. Various states or other jurisdictions have also enacted their own rules. These various rules apply if a company does business in the United States, or sues or is sued in the United States. Various other countries also have rules regarding electronically kept information.
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While there is no clear guidance from the courts, there are many commentators that have discussed the problems and solutions. Even a Google search on "electronic discovery" shows that there are hundreds of vendors that have consulting services and/or software for all or parts of the records management policies and procedures, litigation holds, and/or retrieval, identification of relevance and production of electronically stored information. I am not recommending any vendor or consultant, but I will give a few examples of what can be found on such a search: At least one company listed on Google describes software it has for in-house counsel to manage the whole litigation hold and collection process. PSS Systems at www.pss-systems.com. The site has available their Preservation Benchmarks for 2008 and Beyond, which sets out what they think are necessary benchmarks for a good process and controls, and describes their software. Zantaz at www.ZANTAZ.com, has a white paper for download entitled FRCP 37(f): What the Heck is Good Faith?, which also sets out their suggestions for what is needed to establish good faith. Clearwell has a white paper for download on its site at www.clearwellsystems.com entitled: E-Discovery Best Practices from Real-World Cases. The Sedona Conference, a working group of attorneys, technical people, and other interested parties, has commented on many of the proposed rules. Their website is: www.sedonaconference.com. They also have papers on recommended best practices, for litigation holds, and discovery production. Many law firms have e-discovery experts and technical experts that provide briefings or updates on the law to in-house personnel, and advice on records management, litigation holds, discovery and production, and/or have personnel who have created customized software for clients to track and manage the litigation hold and discovery process. [Examples of contacts: Jeff Dykes is one of Fulbright and Jaworski's e-discovery contacts at its Denver office at: jdykes@fulbright.com, and Erica Lee Kennerich is one of Vinson & Elkins e-discovery contacts at its Houston office at: ekrennerich@velaw.com.] A recent PowerPoint on e-discovery presented at a recent Rocky Mountain Mineral Law seminar is also available through the website. [Ethics and Technology: E-Discovery Under the New Rules and Other Issues, Rocky Mountain Mineral Law Foundation, 53rd Annual Meeting -- July 19, 2007]. Several accounting or auditing firms also provide the same type of services, along with auditing services for enforcement of the procedures and policies. Bobbi Basile is one of Ernst & Young's e-discovery contacts at their Denver office at: bobbi.basile@ey.com.
Electronically kept information includes all electronic information: all databases, imaged documents, data compilations, processes, flows, metadata, emails, text messages, calendars, address lists, in some cases voice mails, etc., regardless if kept on a system, laptop, CD, removable devices such as CDs, disks, memory sticks, thumb drives, flash drive, Blackberry, Palm, cell phone, or other device, whether kept at an office or at home, whether kept in an office file or personal desk file, and in certain instances regardless if the system is designed to retain the information or not (i.e. temporary files). The duty to preserve documents, including electronically kept information, is an issue of substantive law of the jurisdiction in question. Generally the duty arises when a party knows or should have known a dispute exists or litigation may ensue, or as otherwise specified by statute or rule. In Zubulake v. UBS Warburg, 229 F.R.D. 422 (S.D. N.Y. 2004), the court stated:
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"Once a party reasonably anticipates litigation, it must suspend its routine document retention/destruction policy and put in place a `litigation hold' to ensure the preservation of relevant documents." At 431.
Failure to preserve evidence or significant alteration of evidence or destruction of evidence ("spoliation"), including electronically stored information may result in severe and costly sanctions: an instruction to the jury that the jury can assume the deleted electronically kept information (generally emails) were favorable to adversary's position ("adverse-inference instruction"); striking defenses (if defendant failure); dismissal of the claims (if plaintiff failure); payment of attorney and expert fees, costly payment of costs of restoring and reviewing backup tapes, referral to state bar for discipline, and etc. This paper is not intended to discuss the issue in depth, but instead is tailored to alert counsel on necessity of management of e-discovery and of reporting to management on the risks.
While the Federal Rules of Civil Procedure in Rule 37(e) sets out a partial potential "safe harbor" to a sanctions decision, it is limited:
"(e) Failure to Provide Electronically Stored Information. 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."
This section:
"focuses on a distinctive and necessary feature of computer systems, the routine alteration and deletion of information that attends ordinary use. Many steps essential to computer operation may alter or destroy information, for reasons that have nothing to do with how that information might relate to litigation. As a result, the ordinary operation of computer systems creates a risk that a party may lose potentially discoverable information without culpable conduct on its part. . . ." Advisory Committee Notes.
The Rule was intended to keep in mind the need to balance a corporation's need to manage its day-to-day operations against a litigant's right to obtain evidence. Id. The Rule's safe harbor applies to sanctions for the inadvertent destruction of documents, despite the good faith use of a litigation hold. It is not an excuse or substitute to a record retention and management policy and procedures or a litigation hold. However, no definition of "good faith" is provided. The little...
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