Evolving Electronic Discovery: Where Do We Go From Here?

Kathleen Stone

We all know that e-mail and other electronically stored data presents challenges in litigation.

Locating, retrieving, sorting, reviewing and producing massive amounts of material can lead to big headaches for lawyers and big expenses for parties, usually corporate clients. The headaches and expenses are here to stay.

For managing the headaches we’ve relied on the existing rules of civil procedure, on currently accepted ethical standards, and on judicial decisions as they emerge. However, the Federal Rules of Civil Procedure are being amended to take account of electronic discovery.

Starting in 2002, a comprehensive analysis of electronic discovery was undertaken by the Sedona Conference, a group of lawyers, judges, professors and consultants. This was not the first time the profession had studied the problems of electronic discovery, or advocated amending the Federal Rules, but their work, including the Sedona Principles and the Sedona Guidelines, was a prime catalyst in the movement toward amending the Federal Rules.

Their published principles and guidelines are highly detailed. In contrast, the proposed rules amendments are quite general.

The Federal Rules of Civil Procedure, as presently in effect, already apply to electronically stored information. Rule 34 defines the term “document” as including data compilations from which information can be obtained, translated through detection devices if necessary, into reasonably usable form.

Yet the rules were drafted when paper discovery was essentially all there was. By now, of course, discovery encompasses paper and electronic discovery, with the latter including e-mail, web pages, word processing files, computer databases, and most anything else stored on a computer.

The comment period on proposed amendments to the Federal Rules of Civil Procedure recently closed, on Feb. 15. Federal Rule 34 of Civil Procedure, if amended, will distinguish between documents and electronically stored information, and expansively define the latter to avoid a future argument that it is limited to technology existing at the time the amendment goes into effect.

The amended Federal Rule 16 will require counsel to incorporate their plan for electronic discovery and protection of the attorney-client privilege in the pre-trial scheduling order. These proposals proved relatively uncontroversial during the comment period.

More controversial is that portion of the amendment to Rule 34 which would allow the requesting party to specify the form in which information is to be produced. This has stirred up comment that cost shifting should also be addressed in the new rule because otherwise the producing party may be left to pay for assembling and formatting discovery materials, with costs substantially greater than would be expected with entirely paper discovery.

Also controversial is the amended Federal Rule 26 (b) (2) (C) which will require production of electronically stored information only if it were “reasonably accessible.” The phrase “reasonably accessible” is not defined in the rule, leaving us to wonder where the courts will draw the lines.

The rule also allows a requesting party to argue that good cause exists for discovery of all information, including that which is not reasonably accessible.

Proposed Federal Rule 33 requires that a party reviewing business records in order to answer interrogatories must include electronically stored information in the review. Alternatively, the responding party may allow access to the electronic records themselves, similar to a responding party’s option to produce business records under the current Rule 33 (d).

Most interestingly, amended Federal Rule 37 will protect a party from sanctions where information is lost because of the “routine operation of the party’s electronic information system,” as long as the party took “reasonable steps” to preserve information it knew or should have known was discoverable.

This safe harbor provision is designed to allow for the routine overwriting or recycling of tapes or discs, so long as reasonable effort was made to preserve discoverable information. This proposal generated complaints from businesses that the safe harbor is not sufficiently defined to give them latitude to continue the practice of overwriting back-up tapes or routinely deleting emails.

Members of the plaintiffs’ bar commented that the amendment does not adequately address the prejudice that may occur if information is permanently lost, even if it occurred in the context of a routine tape recycling.

The “reasonable steps” that a party must take to preserve material are not clearly defined; more details on what is expected will undoubtedly emerge from judicial decisions, including Zubulake V, discussed below.

Inevitable Litigation

While most of us prefer not to bring discovery disputes to court, it seems clear that litigation over electronic discovery will continue, no matter what form the amended Federal Rules finally take.

There will inevitably be litigation over what information is “reasonably accessible,” whether a party took “reasonable steps” to preserve information, whether a party should have known that information, now overwritten, was discoverable, and what level of expense and burden a producing party should bear. Before taking such a dispute to court, we will carefully scrutinize case law to evaluate our chances.

One of the most striking decisions to deal with discovery of electronic information is from the Southern District of New York, Zubulake v. UBS Warburg LLC, 2004 U.S. Dist. Lexis 13574 (2004) (Zubulake V). While the case is not the law of the Massachusetts, it is widely cited as a leading indicator of counsel’s and parties’ duties with regard to electronic information.

By the time the Zubulake plaintiff filed her second motion for discovery sanctions, which led to Zubulake V, the court was all too familiar with the parties and the course of discovery. The court had already heard evidence about the deletion of e-mails, and claims that they contained evidence germane to the proof of plaintiff’s claim. The court had also heard that some e-mails, though preserved, were withheld from defense counsel by defendant itself.

Near the outset of the litigation, both in-house and outside counsel had followed the now common practice of instructing defendant’s personnel to retain relevant electronic information, and they reiterated that instruction periodically. Although the court commented that counsel had come close to satisfying their obligations, the court nonetheless found deficiencies.

The court noted that counsel had failed to give the “litigation hold” instruction to one key employee, failed to request information retained by another key employee, failed to communicate adequately with a third employee about how she maintained her computer files, and failed to safeguard backup tapes which might have contained some of the emails that were irretrievably lost when defendant’s personnel deleted messages.

Expanded Duties

The Zubulake V ruling expanded on the duties of counsel, both in-house and outside. Issuing a “litigation hold” is only the first step. Counsel and the company must take “reasonable steps” to see that source of relevant information are located, and once located, preserved and produced.

This would include reissuing the hold instruction directly to the key players in the litigation so that the duty to preserve documents is planted clearly in their minds. Counsel must become fully familiar with the company’s document retention policies, and “data retention architecture.”

This will involve speaking to information technology personnel to get an explanation of backup procedures and actual retention practices. It also may involve performing a keyword search throughout the entire computer system to identify relevant documents, and having a dialogue with the key players in the litigation in order to understand how they store information.

For instance, in Zubulake V, one of defendant’s employees told counsel she maintained documents in an “archive.” Had counsel investigated, she would have learned that the archive was a separate active file on the employee’s computer, and documents could have been preserved and produced early in discovery.

Finally, counsel should instruct all employees to produce electronic copies of relevant files, and make sure that all relevant backup tapes are identified and stored in a safe place. Where practical, the court said, counsel should take physical possession of the tapes. Otherwise, they should be segregated and placed in storage.

Fatal Error

In Zubulake V, a fatally damaging fact was that some employees ignored counsel’s instructions. They deleted relevant e-mails, with the result that some e-mails were lost entirely. Others, while eventually recovered from back-up tapes, were only produced later, after extensive motion practice in court.

The court found that the deletion of e-mails was willful spoliation of evidence and sanctioned the defendant by ordering that an adverse inference instruction be given to the jury. The judge also ordered the defendant to shoulder the expense of a second round of depositions occasioned by the late production of e-mails and the expense of the motion for sanctions. The company also had to pay a substantial share of the cost of restoring the deleted e-mails.

The Zubulake V decision marked a beachhead in defining how a court views counsel’s obligations. It also drove home the point that ultimate responsibility for preserving and producing data falls on the parties themselves. When a party does not heed counsel’s instructions, the party will pay.

And pay a lot. In March 2005, the case went to trial and the judge, as promised in Zubulake V, instructed the jury that an adverse inference could be drawn from the defendant’s failure to produce certain e-mails and from its destruction of electronic records, despite counsel’s instructions to preserve them.

The jury awarded the plaintiff $9 million in damages and $20 million in punitive damages. As the bar awaits amended Federal Rules of Civil Procedure, the Zubulake decision stands as a reminder to corporations and their counsel of what can happen if they fail to meet their obligations in electronic discovery.

Kathleen C. Stone represents businesses and financial institutions in disputes before courts, administrative bodies and mediators. She practices with the firm of Looney, Cohen, Reagan & Aisenberg, LLP in Boston and can be reached at (617) 371-1153 or [email protected].