Paradigm Shift: E-discovery rules on verge of catching up with technology

Litigants in federal court will need to fast-forward their electronic discovery efforts and front-load their litigation budgets when recently approved amendments to the federal rules of civil procedure take effect Dec. 1.

That’s a shift experts predict in light of changes to the rules that will require lawyers to comprehensively address electronic discovery in Rule 16 judicial conferences no later than 120 days after service of a complaint.

“Probably 70 to 90 percent of litigation costs are discovery-based and those expenses are firing up in electronic discovery,” according to trial lawyer B. Jay Yelton III of Michigan-based Miller Canfield.

A technology explosion is fueling that fire. Blackberries, laptops, thumb drives, cell phones, iPods and other portable devices are spreading electronic information widely, and making every employee a records manager.

“Outside counsel, in-house lawyers and IT people will have to function in a more tightly bound structure to organize data at the start of a case now,” said Adam Kessel, a former computer programmer turned litigator at Boston’s Wolf Greenfield.

Kessel warned that failing to identify or preserve electronic records at the outset of a case could trigger sanctions under Rule 37 – including fines, adverse jury instructions and even dismissal of cases.

The amended rules “will affect litigation of every stripe, including civil proceedings with the government,” said Kathleen C. Stone, a Boston employment lawyer and litigator.

Stone noted the new rules require electronic data to be produced in the form in which it’s usually maintained, while providing a safe harbor for good faith routine destruction of data.

The amended rules will also require the return of inadvertently produced material that is privileged, and will further limit discovery that involves e-data that is “not readily accessible due to undue burden or cost.”

Mark Sableman, who handles technology-related litigation for Thompson Coburn in St. Louis, said “lawyers have expressed concerns about a two-tier discovery system” because of rules specifically aimed at e-data. But he expressed support for the rules, adding that “anyone with a sloppy filing system” already faces a multi-tier system requiring case re-assessments when documents surface during trial preparation.

The amendments, according to Yelton, “can be of real value to corporate America,” but he cautioned that “they can really hurt you if you don’t pay attention to them.” Companies should get their electronic house in order now, he stressed, by identifying sources of e-data and the costs or means of producing it.

Corporations will also have to pay attention to potential conflicts between the new rules and emerging statutes and regulations at the state level and in other countries.

Ronald L. Marmer of Chicago-based Jenner & Block, who has tried complex cases with global parties, cautioned that “you may find that a London bank is not doing things according to federal rules because practices required here are prohibited there.” He added that state statutes on privilege and emerging electronic data issues supersede federal procedural rules in some instances.

The procedural amendments approved by the U.S. Supreme Court are available at http://www.uscourts.gov/rules/newrules6.html#cv0804. The pending rules are still subject to change by Congress, although no alterations are expected.

More information on this topic has been compiled by The Sedona Conference (www.thesedonaconference.org), a law and policy think tank dealing with complex issues in intellectual property and litigation.

Jump starting discovery

Under the new e-discovery rules, lawyers must meet and confer early in the case to concoct a discovery plan for e-data that will meet the requirements of a Rule 16 scheduling order.

Yelton said the fast-track discovery plan will require an early collaboration between information technology specialists and lawyers in preparation for Rule 16 judicial conferences. Management support for early, comprehensive discovery will be important as a result.

Lawyers, according to Stone, will specifically need to “develop a plan to address responsibilities for identifying, preserving and producing various kinds of electronic information” for a Rule 16 scheduling order.

Sableman added that the scheduling conference is a good place to get a judge’s input on what information is subject to a duty to preserve and what is subject to a duty to produce.

With the explosion in portable data sources, such as Blackberries and laptops, lawyers will also need to identify key people outside of IT early in the case, according to Sableman. “In some cases, decentralization of records can be a nightmare. Salespeople often have information on laptops and PDAs, and there is a lot of other stuff lurking out there now.”

In fact, e-data is hiding everywhere. It’s in black boxes found on commercial airliners and in every modern automobile, and it is hidden in servers or hard-drives – in the form of metadata – that record all kinds of chronologies, page views and modifications to documents.

Because the e-data explosion is so intense, “it is clearly a best practice to identify all of your data and organize it before litigation so you can cut attorney hours reviewing information and revisiting mistakes that inevitably occur when you aren’t prepared for litigation,” said Kessel.

The rules will require early disclosure of the categories, locations and forms of all e-data, according to Kessel. A judge can impose sanctions on a party that fails to disclose, preserve or produce relevant information.

“Lawyers tend to worry about finding damaging documents,” Kessel said, “but you may give up key arguments in your favor by not indexing and organizing data to preserve [exculpatory] information.” Any late breaking evidence missing at the start of a case could be excluded or subject to special jury instructions, he said.

Rule 26 will require “initial disclosures regarding all electronic data supporting your case,” Yelton added.

The experts also had suggestions for finding another party’s data.

Sableman, for example, recommended doing a Rule 30(b)(6) deposition of a custodian of records at the start of a case to determine how electronic information is kept, analyzed and generated.

Kessel described metadata as a “treasure rove of shortcuts to relevant information.” Server logs can track every website visited, as well as all traffic in and out of a server of any kind, including entries for deleted or modified e-mails, he explained.

The amended rules leave open questions about sources and duties associated with third party e-data, Kessel noted. “Google stores information for years, though they are resistant to subpoenas to get it, and ISPs of all kinds log company activity,” he observed.

Discovery limits

Lawyers also called attention to new boundary lines for reasonable discovery under the amended rules.

Yelton noted litigants may have to preserve, but not necessarily produce e-data that is “not readily accessible due to undue burden or cost.” He said courts may consider whether e-data is “cumulative, expensive to produce, valuable to the case or relevant to significant damage claims” when deciding if production is required.

“There rules provide carrots to be proactive in proving reasonable limits on production and reproduction,” Yelton said. But he stressed that in-house lawyers and technology professionals will need to prepare now for arguments on all kinds of data at the outset of cases. “You also have to be consistent in what you argue to the court in different cases,” he cautioned.

Lawyers noted that it may be harder to get discovery of expensive e-data in smaller cases that don’t justify large pre-trial budgets.

For those cases, Sableman urged in-house counsel to become familiar with “simple and easy electronic discovery techniques,” such as the use of the Windows “find” functions to sort through data on a hard drive. Even long histories of web logs and website search activities can fit on to one compact disc, according to Sableman.

Sableman predicted litigation could ensue on discovery responsibilities pertinent to any e-data that’s too expensive to restore due to encryptions, or destructions that only costly data recovery services can overcome.

Stone noted that the new version of Rule 26 clarifies what parties need to do when returning inadvertently produced material subject to a claim of privilege (until any issue about privilege is resolved). “Cases were all over the map on this, and the rules finally provide some clarification here,” said Stone, who has her own practice in Boston.

She also suggested that the difficulty of screening huge volumes of e-data has made it “more imperative than ever for lawyers to enter into agreements to respect privileged material” regardless of the Rule 26 language.

But Marmer cautioned lawyers to be wary of a trap in the rules affecting waiver of privilege. “You could be in a jurisdiction where the law says that production of privileged documents blows the privilege,” he noted, adding that state substantive law on privilege can trump federal procedural rules.

Marmer also warned that an agreement allowing sneak peeks at data before deciding whether it is subject to production “could land you back in federal court against a third party who argues that you have to produce something because you produced it in another case.”

The third party might successfully argue that a relevant state’s substantive law creates a waiver of privilege as to documents produced in another case pursuant to agreements that don’t bind the third party.

Producing and preserving e-data

The new rules also address the required forms of e-data production, as well as issues associated with destruction of documents. The amended Rule 34 will require production of electronic information in “the form in which it is usually maintained.”

Marmer suggested this phrase in the new rule might raise more questions than it answers. For example, a judge could require all available e-data to be reflected in a printout or in a mirror image hard drive. He also raised the question of whether all metadata and other “historical capture information” might be required as well.

He pointed to another potential problem arising from the fact that more data now resides on most servers than anyone can meaningfully use, track or analyze. “If you ask for all data related to sales, a [respondent] could easily neglect to supply all kinds of information that is not connected with queries they normally use to extract data from a program,” Marmer observed.

The veteran trial lawyer suggested issues about forms and extractions of e-data should be clarified at discovery conferences mandated by Rule 26.

Sableman predicted that Rule 34 could impact companies and their lawyers “who are still producing nothing but paper” in response to discovery requests for electronic information. He said the rule should encourage more efficient ways of copying and producing e-data.

The new rules may prevent lawyers from “running up costs,” according to Kessel, who noted that “30,000 pieces of paper” are often produced in response to requests for all relevant electronic information.

How safe is the harbor?

Rule 37 contains a “safe harbor” provision that protects litigants who do not produce information destroyed pursuant to “good faith” reasons associated with routine operation of electronic systems, such as periodic overwriting or destruction.

Stone said this change encourages establishment of written policies for document retention and destruction.

Kessel cautioned that “the rule only appears to provide cover for routine destructions,” asserting that “the ‘good faith’ standard does not support passive inaction once a duty to preserve is established.”

He explained that case law and commentary show that litigants must do all they can to avoid programmed destructions or errors after any duty to preserve arises from litigation. “You could drive a dump truck through the holes in this safe harbor exemption,” he observed.

Marmer agreed.

“There is a real fear among lawyers,” he said, “that some people will see this ‘safe harbor’ as a signal that routine destructions are just permitted.”

Kessel called attention to the major themes associated with document retention and spoliation reflected in the rules generally.

“I believe most of the litigation under these [new rules] will center on spoliation and sanctions,” he said. Kessel advised companies to take a steady stream of “electronic snap shots” of electronic information that may be in constant flux during the course of litigation.