E-Discovery Amendments Are Looming, And Welcome

Electronic discovery has long flummoxed companies in litigation, as they struggle to decide which documents they should save and which ones can be safely destroyed, either in the paper shredder or on a reformatted hard drive.

Now a brave new world looms in the form of much-needed changes to the Federal Rules of Civil Procedure—which should give general counsels and corporate secretaries everywhere more guidance on how to navigate electronic discovery, and afford them some new protections as well.

The proposed amendments, crafted by the Committee on Rules of Practice and Procedure and approved by the U.S. Supreme Court in April, will take effect Dec. 1, unless Congress takes action. Overall, experts say the changes are helpful for companies that must respond to electronic discovery requests.

Prignano

“The amendments are welcome—they should streamline electronic discovery practice a bit and help save companies some costs in this area,” says Stephen Prignano, a partner with Edwards Angell Palmer & Dodge. “They’ll also force parties who are making electronic discovery requests to be more specific instead of asking for kitchen sink.”

Prignano and others say the changes reflect the new reality that requests for electronic documents have surpassed requests for paper documents in litigation discovery in recent years. “The changes are reflective of the need to bring the rules more in line with what’s happening in litigation,” says Prignano. “We’re seeing much more data being requested in electronic form.”

Mennitt

Gary Mennitt, a partner at the Dechert law firm, agrees. “In the last five years, electronic discovery has overwhelmed paper discovery as the basis for producing information in litigation,” he says.

The result is that companies—and courts—have been confronted with numerous difficult legal issues: how to identify electronic data, what format the data is produced in, the responsibilities of parties to search for electronically stored data, and who bears the cost when a search requires examination of exotic storage media, such as backup tapes that need data conversion.

“The old rules really were not suited to deal with some of the complexities of electronic data,” Prignano says. “The new rules address some of those issues and create procedures and clearer guidance for litigators of the parties’ responsibilities in electronic discovery.”

Motivation For Better Retention

While the upcoming changes had been in the works previously, verdicts in two high-profile civil cases last year hinged on issues of electronic discovery and put the need for an overhaul in sharp relief. The cases, Zubulake v. UBS Warburg and Coleman v. Morgan Stanley, both resulted in large plaintiff verdicts that Mennitt says depended “in large part on judicial findings that companies were unable or unwilling to produce relevant email and other electronically stored information.”

In the in April 2005 Zubulake case in New York federal court, the court ordered UBS Warburg to produce certain emails related to an employee who made claims against the bank. The judge in that case found that UBS failed to preserve and produce the requested emails adequately and failed to safeguard certain computer backup tapes. The jury eventually returned a verdict for the plaintiff of more than $29 million.

In Coleman v. Morgan Stanley in a Florida state court, the jury awarded the plaintiff, financier Ronald Perelman, more than $1.4 billion in May 2005 on claims that Morgan Stanley defrauded him when he sold his camping gear company to Morgan client Sunbeam Corp., after the judge in that case said Morgan Stanley failed to preserve and produce certain emails and failed to safeguard some computer backup tapes; the judge then instructed the jury to infer that the withheld documents demonstrated fraud. Morgan Stanley has asked a Florida appeals court to overturn the verdict.

Mennitt at Dechert says the Zubulake and Coleman cases, along with the upcoming federal rule changes, “collectively present an opportunity for companies to revisit their information systems and analyze whether they are appropriately complying with the law and at same time providing the maximum protection for the company.”

E-DISCOVERY

The excerpt below is from the "Amendments To The Federal Rules of Civil Procedure" related to discovery:

Rule 34. Production of Documents, Electronically

Stored Information, and Things and Entry Upon

Land for Inspection and Other Purposes

Scope Any party may serve on any other party a

request (1) to produce and permit the party making

the request, or someone acting on the requestor’s

behalf, to inspect, copy, test, or sample any designated

documents or electronically stored information —

including writings, drawings, graphs, charts,

photographs, sound recordings, images, and other

data or data compilations stored in any medium from

which information can be obtained — translated, if

necessary, by the respondent into reasonably usable

form, or to inspect, copy, test, or sample any

designated tangible things which constitute or contain

matters within the scope of Rule 26(b) and which are in the possession, custody or control of the party upon

whom the request is served; or (2) to permit entry

upon designated land or other property in the

possession or control of the party upon whom the

request is served for the purpose of inspection and

measuring, surveying, photographing, testing, or

sampling the property or any designated object or

operation thereon, within the scope of Rule 26(b).

Procedure. The request shall set forth, either by

individual item or by category, the items to be

inspected, and describe each with reasonable

particularity. The request shall specify a reasonable

time, place, and manner of making the inspection and

performing the related acts. The request may specify

the form or forms in which electronically stored

information is to be produced. Without leave of court or written stipulation, a request may not be served

before the time specified in Rule 26(d).

The party upon whom the request is served shall

serve a written response within 30 days after the

service of the request. A shorter or longer time may be

directed by the court or, in the absence of such an

order, agreed to in writing by the parties, subject to

Rule 29. The response shall state, with respect to

each item or category, that inspection and related

activities will be permitted as requested, unless the

request is objected to, including an objection to the

requested form or forms for producing electronically

stored information, stating the reasons for the

objection. If objection is made to part of an item or

category, the part shall be specified and inspection

permitted of the remaining parts. If objection is made

to the requested form or forms for producing electronically stored information — or if no form was

specified in the request — the responding party must

state the form or forms it intends to use. The party

submitting the request may move for an order under

Rule 37(a) with respect to any objection to or other

failure to respond to the request or any part thereof, or

any failure to permit inspection as requested.

Unless the parties otherwise agree, or the court

otherwise orders:

a party who produces documents for inspection

shall produce them as they are kept in the usual

course of business or shall organize and label them

to correspond with the categories in the request;

if a request does not specify the form or forms

for producing electronically stored information, a

responding party must produce the information in

a form or forms in which it is ordinarily maintained or in a form or forms that are reasonably usable;

and

a party need not produce the same

electronically stored information in more than one

form.

Excerpt Of Related Committee Note

Subdivision (a). As originally adopted, Rule 34

focused on discovery of “documents” and “things.” In

1970, Rule 34(a) was amended to include discovery of

data compilations, anticipating that the use of

computerized information would increase. Since then,

the growth in electronically stored information and in

the variety of systems for creating and storing such

information has been dramatic. Lawyers and judges

interpreted the term “documents” to include

electronically stored information because it was

obviously improper to allow a party to evade discovery

obligations on the basis that the label had not kept

pace with changes in information technology. But it

has become increasingly difficult to say that all forms

of electronically stored information, many dynamic in

nature, fit within the traditional concept of a

“document.” Electronically stored information may

exist in dynamic databases and other forms far

different from fixed expression on paper. Rule 34(a) is

amended to confirm that discovery of electronically stored information stands on equal footing with

discovery of paper documents. The change clarifies

that Rule 34 applies to information that is fixed in a

tangible form and to information that is stored in a

medium from which it can be retrieved and examined.

At the same time, a Rule 34 request for production of

“documents” should be understood to encompass, and

the response should include, electronically stored

information unless discovery in the action has clearly

distinguished between electronically stored

information and “documents.”

Discoverable information often exists in both

paper and electronic form, and the same or similar

information might exist in both. The items listed in

Rule 34(a) show different ways in which information

may be recorded or stored. Images, for example, might

be hard-copy documents or electronically stored

information. The wide variety of computer systems

currently in use, and the rapidity of technological

change, counsel against a limiting or precise definition

of electronically stored information. Rule 34(a)(1) is

expansive and includes any type of information that is

stored electronically. A common example often sought

in discovery is electronic communications, such as email.

The rule covers — either as documents or as

electronically stored information — information “stored

in any medium,” to encompass future develop-ments

in computer technology. Rule 34(a)(1) is intended to

be broad enough to cover all current types of

computer-based information, and flexible enough to

encompass future changes and developments.

References elsewhere in the rules to

“electronically stored information” should be

understood to invoke this expansive approach...

Source

Amendments To The Federal Rules of Civil Procedure (See Complete Document For Additional Committee Notes And Related Details)

In particular, Mennitt says large companies should “reconsider their document retention policies and should consider tailoring their document retention to the extent allowed by regulatory requirements.”

Among other things, the amendments specifically define electronic data, so companies no longer have to rely on the old definition of documents under the traditional federal rules, notes Prignano. The changes also mean parties in litigation must now confront e-discovery issues at the outset of a case, which “wasn’t expressly provided for” under the old rules, Mennitt says.

The proposed rule amendments also encourage the use of “non-waiver,” “quick peek” or “clawback” agreements which allow companies to produce electronic discovery in bulk without a full prescreening review, and then later assert attorney-client privilege. That, Mennitt says, could help companies trim the hefty costs often associated with sifting through mountains of electronic information.

Providing A Safety Net

Stephen Lobbin, senior counsel at the Foley & Lardner law firm, says he doesn’t expect many companies to avail themselves of the ability to produce electronically stored information without screening it.

Lobbin

“Most large firms will continue to screen for privilege, but the new rules provide some safety net in case something slips through cracks or for a smaller company that doesn’t want to bear the cost of screening tons of documents,” he says. He notes that the change goes “hand in hand” with proposed Rule of Evidence 502. That proposed rule, scheduled to be published for comment in August, would formalize a “subject matter” waiver of the attorney-client or work-product privileges through voluntary disclosure, with an exception for “inadvertent” disclosure.

The amendments also provide a safe harbor clause that says the courts won’t impose sanctions on companies for information lost as a result of “routine good faith” computer operations. Failure to produce or failure to respond fully to a discovery request are the most heavily sanctioned areas of discovery practice, Prignano says.

“As a practical matter, if companies have an automatic computer overwrite function and it’s being operated in good faith, they won’t be sanctioned” if they can’t produce documents that were accidentally deleted, says Mennitt.

The caveat is that, to be afforded the protections of the safe harbor, Mennitt and others note, companies need to appropriate preservation systems in place.

Carroll

According to Timothy Carroll, co-chair of the records management practice at Vedder, Price, Kaufman & Kammholz, many companies may not meet that standard. “Most companies still don’t have game plan for handling and managing electronic information in lawfully compliant way,” he says. “I’d guess that only a quarter of companies have gotten their arms around these issues.”

In recent years, Carroll says most public companies have put issues like record and information management “on the back burner” while they focused on complying with Sarbanes-Oxley and data privacy standards. For email—often at the heart of any e-discovery requests—companies simply save everything.

“That’s not a policy or a solution, and that can actually increase their risk of getting hit with a big judgment,” Carroll warns. “The odds are that those companies are warehousing more smoking guns. There’s also a chance that their servers can become overburdened and they could lose electronic information.”

Other Protections

Another significant change under the proposed new rules is the ability to designate certain electronic data as “inaccessible or not reasonably accessible.” Under the rules currently in effect, parties must produce whatever data was requested whether or not it’s reasonably accessible. Under the proposed rules, the responding party doesn’t have an immediate obligation to produce such data, Prignano says.

“That’s a big change in discovery practice,” he says. “It can enable a responding party to avoid some of the enormous costs of trying to access data such as that stored on backup tapes in response to a request.”

While the changes are helpful, Prignano warns that e-discovery requests can still be costly and can “still trap for the unwary company.”

“The best thing a company can do is have good document retention policy that provides for the routine purge of electronic data after the point where there’s no need to retain it for business or regulatory reasons,” he says. Companies should also have an email system capable of classifying and categorizing email “so it’s easily retrievable when a [discovery] request comes in,” he says.

Lobbin says companies may want to take steps to reduce the number of emails and electronic documents created in the normal course of business. “A lot of cases can turn on an informal email written by one executive to another,” he cautions.

Carroll at Vedder Price adds that it’s “even more important now for companies to be proactive” about electronic document management and retention. “They need to find out what [electronically stored information] they have, where they keep it, how long they need to keep it and get game plan in place to respond to litigation,” he says.

The proposed amendment—as well as related coverage, columns, commentary and Webcasts—can be found in the box above, right.