E-Discovery Amendments to the Federal Rules of Civil Procedure - What You Don’t Know About E-Discovery Can Hurt You
Ninety-three percent of all information generated today is created digitally and nearly 70 percent is never reduced to paper. Information technology (IT) networks are so vast they can send and receive from 250 to 400 million e-mails a month. Companies spent more than $4.5 billion on electronic information in 2005 – $1.5 billion of which was focused on electronic discovery. These numbers may sound shocking to some, however, for most they have taken on a numbing familiarity.
In the 21st century, file rooms and desk drawers have given way to file servers and hard drives as the sources of information sought by litigants. Since electronic data storage is relatively inexpensive and nearly unlimited, the digital information age has also exponentially expanded the volume of materials generated, retained and made accessible to employees on a daily basis. Therefore, it should be no surprise that discovery of electronic data presents a daunting task and, more importantly, a host of potential pitfalls for the unwary and unprepared.
Corporate counsel can no longer turn a blind eye to the reality of “e-discovery”; it is now imperative that they become intimately familiar with their company’s information systems infrastructure and establish or strengthen ties with records management and IT personnel. Similarly, outside lawyers, who at times can become glassy-eyed during a discussion of computer technology, can no longer pretend that these issues are solely the responsibility of corporate employees or in-house counsel. The reality is that both outside and in-house lawyers can be held responsible for a party’s failure to reasonably preserve electronic data. See Zubulake v. UBS Warburg LLC, 229 F.R.D. 422 (S.D.N.Y. 2004) (“Zubulake V”).
Perhaps the most significant recent development in the e-discovery arena is the enactment of amendments to the Federal Rules of Civil Procedure specifically addressing discovery of electronically stored information. Absent unexpected legislation by Congress to prevent their enactment, the rule changes will take effect on December 1, 2006.
The Amended Rules
E-Discovery Must Be a Topic for Early Action and Discussion
Electronically stored information must now become a topic of discussion at the very earliest stages of litigation. Changes to Rules 16 and 26 will require parties, at the outset, to address procedures to identify, preserve and produce electronically stored information. Such information must be included in initial Rule 26 disclosures and the Rule 26(f) conference must include a discussion of issues regarding electronic discovery including: (1) the form of production; (2) preservation of information; and (3) agreements for assertion of privileges after inadvertent production. The court is also invited to address e-discovery issues in its Rule 16 scheduling order.
Probably the most fundamental change proposed in the new amendments is to place a focus on initial production from accessible sources while providing opportunities for a requesting party to seek additional information from inaccessible sources by court order. Amended Rule 26(b)(2)(B) specifically authorizes a party to “not provide discovery of electronically stored information from sources that the party identifies as not reasonably accessible because of undue burden or cost.” The responding party is required to identify the sources of potentially responsive information that it has not produced. If the requesting party is not satisfied with the identification, it can move for production and the burden is on the producing party to defend the characterization that the materials are not reasonably accessible. However, upon a showing of good cause, any type of electronically-stored information is subject to being produced, albeit with the option of allocation by the court of reasonable production costs.
The Committee Note to Rule 26(b)(2)(B) clearly contemplates that the responding party will provide notice of the “category or type” of “sources containing potentially responsive information that it is neither searching nor producing” (i.e. the records it has designated “inaccessible”) such as deleted information, information kept on back-up systems for disaster recovery purposes and legacy data that is no longer in use.
However, it must be understood that identification of a source as inaccessible does not excuse a party from deciding whether affirmative steps must be taken to preserve (or more likely to prevent the loss of) the information in that inaccessible source pending further discovery in the case. The reality is that simply allowing a computer system to operate normally can result in alteration or deletion of data, and if that is allowed to occur, information that a party is ultimately ordered to produce may be irretrievably altered or destroyed. Counsel must be aware of the language in the Committee Note to Rule 37(f) (the “safe harbor” rule) which instructs,
[A] party is not permitted to exploit the routine operation of an information system to thwart discovery obligations by allowing that operation to continue in order to destroy specific stored information that it is required to preserve.
Thus, depending on the circumstances, a party may need to place a litigation hold on certain electronically stored information if it appears reasonably likely that the information may be relevant to pending or foreseeable litigation, even if the information is not deemed reasonably accessible in the first instance. See Zubulake v. UBS Warburg LLC, 220 F.R.D. 212 (S.D.N.Y. 2003) (“Zubulake IV”) (a party may not, pursuant to its routine operations destroy unique, relevant electronic data from an inaccessible back-up tape if the location of such data is known and the electronic data is not otherwise available elsewhere).
Clearly, it is contemplated that the parties will share their preservation and production strategies with opposing counsel at the earliest stages of litigation and be prepared to defend them. This will obviously require close cooperation among outside and inside counsel, a more focused and intensive preparation at the early stages of litigation, and could involve significant costs. However, to the extent the identification process and initial production are incomplete or evasive, the requesting party may be motivated to push for a burdensome and expensive preservation order or seek further information from sources that are difficult to recover and evaluate.
It is, therefore, advisable that any corporate entity that can reasonably anticipate involvement in litigation, either in federal or state court, consider the implementation of an effective discovery response plan. The efficient operation of such a plan will further guard against inadvertent production and can also be cost-effective in its own right since the more it is practiced, the more efficient it will become. In other words, corporate counsel should prepare now so they are not caught off guard the first time outside counsel comes to them with a request to initiate a litigation hold on electronically stored information.
Spoliation Sanctions and the Rule 37(f) Safe Harbor
Electronic discovery involves many steps – responsive information must be identified, preserved, collected, processed, reviewed and produced. However, history has shown that it is the “preservation” step where attorneys and their clients most often fail, and the failure to adequately preserve data in the face of litigation is the primary reason for most sanctions orders, both civil and criminal. See United States v. Philip Morris USA, Inc., 327 F.Supp.2d 21, 26 (D.D.C. 2004) ($2.75 million sanction for failure of 11 employees to follow litigation hold requirements for e-mails); Coleman Holdings Inc. v. Morgan Stanley & Co., Inc., 2005 WL 674885 (Fla. Cir. Ct. Mar. 23, 2005) (adverse inference instruction); Arthur Andersen, LLP v. United States, 544 U.S. 696, 125 S. Ct. 2129 (2005) (possible criminal liability for organization arising out of improper document retention and destruction practices).
In their day-to-day operations, most companies are required to maintain very little information and they are given wide latitude to decide how that data will be kept. Generally, a company will not be sanctioned for disposing of documents pursuant to a reasonable document retention policy. However, when litigation is commenced or is foreseeable, the rules change and normal retention programs must be suspended so that “potentially discoverable, relevant information” is not lost.
While amendments to Rule 37 provide a narrow “safe harbor” to avoid sanctions where electronic information has been inadvertently destroyed pursuant to a properly established retention program, the extent of the protection is certainly limited. Specifically, Rule 37(f) provides that “Absent exceptional circumstances, a court may not impose sanctions under these rules on a party for failing to produce electronically stored information lost as a result of the routine, good-faith operation of an electronic information system.” It is likely that any failure to maintain electronically stored information will be challenged and questioned, and on a case-by-case basis, it will be determined whether the party acted reasonably and in good faith under the circumstances. Moreover, while the safe harbor provision may prevent courts from imposing rules-based sanctions, it in no way alters a district court’s inherent power to sanction.
That being said, companies can clearly benefit from the enactment and enforcement of reasonable document retention and deletion programs. By retaining as little information in accessible locations as is necessary for the day-to-day operations of the business enterprise, a vigilant company can cut vast amounts of data from the universe it will be required to process in the event a litigation hold is required.
Form of Production
Amended Rule 34 addresses the format of production for electronically stored information and would permit the requesting party to designate the form(s) in which it wants electronically stored information produced. The rule contemplates that the responding party may object to the specified manner of production and provides default standards in the event an agreement cannot be reached. The most important default option involves production in a “reasonably usable form.” This formulation sidesteps issues over the necessity to produce embedded data or metadata. These issues are ones that the Advisory Committee felt would be better left to individual cases since what may be usable or necessary in one case, may not be in another.
Asserting Claim of Privilege or Work Product Protection After Production
Cognizant of the added burdens of privilege review associated with collection, review and processing of huge volumes of electronically stored information, the Advisory Committee enacted a procedure through which a party who has inadvertently produced privileged information or attorney work product may nonetheless assert a protective claim as to that material. New Rule 26(b)(5) provides that once the party asserting the privilege or work product claim regarding inadvertently produced materials notifies the receiving party of the claim and the basis for it, the receiving party “must promptly return, sequester, or destroy the specified information.” The receiving party then has the right to present the information to the court for a ruling on the claim including, presumably, a determination whether the production was inadvertent.
Additionally, Rule 26(f) would require the parties, as part of their initial conference, to discuss “issues relating to claims of privilege or protection as trial-preparation material, including – if the parties agree on a procedure to assert such claims after production – whether to ask the court to include their agreement in an order.”
Together Rules 26(b)(5) and 26(f) attempt to lessen the burden at the document review stage of discovery. In practice, however, the potential of waiving or forfeiting work product protection will prevent most parties from taking advantage of any perceived assistance offered by the rules. There is simply no uniform position taken by the courts on privilege waiver and depending on the jurisdiction, inadvertent production of privileged information can mean that the privilege is deemed waived as to: (1) that document; (2) that category of privileged documents (3) all privileged documents related to that issue; or perhaps, (4) all privileged documents related to the case. The risk to most litigants is simply too great to gamble whether privileged materials inadvertently produced can ever successfully be “clawed back.”
Conclusion
The recent amendments to the Federal Rules of Civil Procedure attempt to provide a workable roadmap for discovery of electronically stored information in federal court – an area that has to date been unpredictable and frustrating. As the Judicial Conference acknowledged in approving the amendments, “The costs of complying with unclear and at times vague discovery obligations, which vary from district to district in ways unwarranted by local variations in practice, [were] becoming increasingly problematic.” These new rules, therefore, are not only an attempt to bring all federal court litigants into the era of modern discovery but also to establish a level of consistency regarding electronic discovery nationwide. Whether or not the amendments will achieve that lofty goal remains to be seen but they are certainly a step in the right direction.
For more information, e-mail Robert E. Tonn at robert.tonn@hklaw.com or call toll free, 1.888.688.8500.