E-Discovery Gets Real
Revisions to the Federal Rules of Civil Procedure still leave many questions about discovery of electronic evidence
Posted Feb 21, 2007 3:22 AM CST
By Jason Krause
When lawyer Ariana Tadler got involved in a major securities case a few years ago, she knew it would be a big deal.
The class action lawsuit alleging that some 300 tech companies and 55 of the biggest investment banks in the United States manipulated stock offerings was complicated enough, says plaintiffs lawyer Tadler. But the real problem was that in the years running up to the litigation, the business world had started using e-mail, and lawyers had been slow to appreciate the implications for litigation.
“It didn’t take long for us to realize that the volumes of information were so mammoth that the way we used to work just wouldn’t cut it anymore,” says Tadler, a partner at Milberg Weiss Bershad & Schulman in New York City. (The firm’s legal troubles are discussed in “Milberg Weiss in the Hot Seat.”)
Tadler persevered, and discovery in the case has yielded the equivalent of 30 million pages of evidence.
Tadler’s reaction has become common among lawyers. Over the past few years, the legal profession has been wrestling with how to accommodate the rules of evidence to the explosion of material that is transmitted and stored electronically.
Those efforts have resulted in amendments to the Federal Rules of Civil Procedure that specifically address discovery of electronically stored information.
The amendments relating to discovery of electronic evidence—e-discovery, in the jargon of litigators—went into effect Dec. 1. The formal process leading to their adoption began in 1999, when the Advisory Committee on Civil Rules, part of the structure of the U.S. Judicial Conference, began studying the issue. Proposed rules drafted by the advisory committee eventually passed muster with the Judicial Conference in 2005. They went into effect automatically after the U.S. Senate and U.S. Supreme Court took no action to block them.
The amendments to the Federal Rules of Civil Procedure are expected to be widely adopted by state courts as well.
The federal rules have been regularly applied to discovery of electronic data. What the amendments have done, however, is recognize that electronic information must be treated on equal footing with paper documents. At the heart of the amendments is seemingly simple new language in the scope provision of Rule 34 that adds “electronically stored information” to the list of what one party in a case may ask that another party produce as part of the discovery process. But the addition of those three words is likely to change the very nature of discovery.
(Language changes in the rules—linked to throughout this article—are indicated by italics.)
While discovery previously involved primarily paper documents, the amendments to Rule 34 and related discovery provisions create an obligation for attorneys to assess how digital information is stored, how it can be produced, and what kind of electronic evidence is relevant to a case.
That means judges, attorneys and clients can no longer ignore digital evidence in litigation. Moreover, attorneys and their clients will have to be thinking about e-discovery issues well before the actual start of litigation.
The amendments were perhaps inevitable. After all, given the storage power of average computers today, even the most modest mom-and-pop businesses may have electronic storage capacity equivalent to 2,000 four-drawer file cabinets, note George L. Paul and Bruce H. Nearon in The Discovery Revolution, a book published by the ABA Section of Science and Technology Law. Meanwhile, large businesses generate millions of e-mails every day. And it’s all subject to discovery, despite the burdens that may result for both lawyers and their clients.
“Litigation is already dangerously close to being a prohibitively expensive proposition for many people,” says Paul, a partner in the business litigation section of Lewis & Roca in Phoenix. “The cost of handling the volumes of data now discoverable is such that we are getting dangerously close to pushing past that point.”
But the problem goes beyond the abundance of electronic evidence now subject to discovery. Another factor is that the nature of digital documents is fundamentally different from that of paper.
Data often is stored on multiple computers within even a single company, with multiple copies that can be edited by different people. And unlike paper, electronic data is often an amorphous thing, not made up of discrete documents or even discrete pieces of information but bits and bytes that are constantly changing and being updated, often linked together from multiple sources.
“To produce paper for litigation, all you have to do is put it in a box and wait for opposing counsel to come get it,” Paul says. “Now, with digital documents, there’s no infrastructure to stop records from being edited and deleted and changed unless you want to shut down and sequester the whole computer system.”
The new rules create a framework for opposing lawyers to hash out how electronic documents will be handled in any given case. That is likely to force them to adopt some new ways of thinking, Paul says.
“The legal profession has become increasingly adversarial, and both sides try to play it close to the vest,” Paul says. “But with the new rules, lawyers have to get together and cooperate, more like the more professional and collegial way lawyers used to operate. If they can’t work it out, discovery will collapse.”
Before the amendments to the federal rules went into effect, courts set guidelines for e-discovery on a case-by-case basis.
Experts consider the most influential case on e-discovery rules to be Zubulake v. UBS Warburg, 217 F.R.D. 309 (S.D.N.Y. 2004). A series of rulings by Judge Shira A. Scheindlin in the course of a discrimination case addressed the questions of what electronic evidence was discoverable, how the cost of discovering electronic records should be shared among parties, and whether sanctions should be imposed on the defendants for failing to produce evidence.
“It was a nationwide wake-up call,” Judge Scheindlin says of the rulings. “Before those opinions, most companies didn’t even have document retention programs.”
But the language of the new e-discovery rules is still general enough that there are likely to be a lot of questions of interpretation and application that will need to be litigated. The Advisory Committee on Civil Rules drafted the amendments in a way that they can be applied to any source of information potentially subject to discovery—even data-gathering and storage systems that haven’t been invented yet—as long as a court can determine whether those systems hold information that is potentially relevant to a particular case.
The e-discovery rules also allow parties to request an opportunity to test or sample electronically stored information that is produced by the other side. So no matter what technology is being used to store data in years to come, parties will be allowed to determine what information is discoverable and whether the information is produced in a way that responds to their request.
The amended federal rules avoid a few important e-discovery issues altogether. The rules don’t specifically address, for instance, how to deal with metadata information contained in a document that is invisible to the user. Metadata is discoverable, but without guidance from the rules, it will be up to the courts to decide when and how it can be used.
“There will be a lot of battles interpreting the new rules,” Scheindlin says. “You can’t have new rules without having to interpret what they say. It may take years of rulings to know what they mean.”
WE NEED TO TALK
Revisions to Rules 16(b) and 26(f) of the Federal Rules of Civil Procedure mandate that the parties address e-discovery issues in a case. The first discussions about those issues must begin when the parties hold their initial discovery planning conference and must be addressed at pretrial scheduling conferences with the judge. Among the topics of discussion should be the form in which the requesting party wants the electronic information produced.
While that sounds like a simple and sensible change, it has a lot of companies and attorneys concerned because that means they have to be ready to talk about electronic documents within weeks of the start of a case. That’s why many large companies and their lawyers have taken to working on document retention policies and detailed inventories of their computer systems.
“I believe companies are better prepared, but a lot are still somewhere between denial and extreme fear about what the rules mandate and how to approach the issue,” says Bobbi Basile, the Denver-based senior manager for investigative and dispute services at Ernst & Young, the accounting and financial services firm.
“The new federal rules presume a sound records management program is in place, but many organizations are still immature in their development of those policies.”
If clients aren’t ready to take early action on e-discovery, they open themselves up to immediate sanctions by the court.
“I would be disappointed if the sides held a 16(b) conference and then come to me, and it’s clear they didn’t address basic questions,” Scheindlin says. That’s just not accepted by the rules.”
Parties who fail to adhere to agreements or preservation orders from the court may be subject to sanctions for spoliation of evidence that include adverse inferences to a jury, criminal charges against parties and professional sanctions against attorneys.
Litigants are increasingly using preservation letters to outline their expectations regarding e-discovery. Not only does this type of letter set forth what evidence they expect to receive, and in what form, but it also can be used to establish or defend against claims of spoliation.
The amendments should make life easier for attorneys if they work with the court and opposing counsel, Scheindlin says. Even if an attorney fails to produce an e-discovery plan during those early meetings, she says, the rules reward attorneys who make good-faith efforts.
“I’d like to put their mind at ease,” she says. “You don’t have to know everything at the first conference. But you at least have to start to assess the situation.”
NO EASY ANSWERS ON ACCESS
A central question in Zubulake was how to determine what electronic evidence is accessible. The question of accessibility can arise in a variety of circumstances. For example, information may be contained in backup tapes that are scattered around corporate offices or that are indecipherable. Information also may be stored in older computer systems that are incompatible with current systems
Scheindlin’s answer in Zubulake was a multiple-part test that amounted to a cost-benefit analysis to determine whether the request to produce could reasonably be met. That test has been widely followed, and the amended federal rules borrow from it, as well. The black-letter rules do not set forth a specific test for determining accessibility. But notes written by the advisory committee list seven “considerations” based on the Zubulake test that address such issues as the likelihood of finding relevant, responsive information that cannot be obtained from other sources.
The new provision on accessibility of electronically stored information is contained in amended federal Rule 26(b)(2)(B).
Despite the guidance offered in the advisory committee comments on deciding accessibility issues, judges ultimately will have to sort out disputes between the parties. This role will require them to assess highly technical questions about the burden and cost of extracting information from specific—and sometimes very disparate—computer systems.
“The courts have to let the discovery fit the crime,” says Francis Lambert, senior compliance adviser at Pleasanton, Calif.-based Zantaz, a firm that advises businesses on complying with e-discovery requests. “Rule 26(b) sets a framework for eliminating evidence that would be unduly costly to discover and to home in on what’s pertinent.”
A “safe harbor” provision relating to accessibility is contained in Rule 37(f), which states that a court may not impose sanctions against a party for failing to provide electronically stored information lost as a result of the routine, good-faith operation of an electronic information system.
“Rule 37(f) is deliberately vague so courts are not tied to any technology,” says Thomas Allman, a senior counsel at Mayer, Brown Rowe & Maw in Chicago who advises clients on compliance with e-discovery requests. “Over time, we’ll have a common-law approach to 37(f), but for now, it’s an open question.”
The safe harbor created by Rule 37(f) should provide some welcome relief for parties who have trouble responding to some discovery requests, says Paul S. Francis, a partner at Baker Hostetler in Houston who handles complex business and commercial litigation.
“I’ve seen cases where the plaintiffs try to use the defendants’ failure to produce documents, even if it’s from an innocent mistake, as a way to hammer the defense and force an expensive settlement,” Francis says. “I don’t know that the new rules will lower the cost at all, but I do think if you prepare well, you can defend yourself better.”
Even with the new safe-harbor provided by Rule 37(f), however, and the fact that destruction of records is done regularly in the course of business, parties may not claim ignorance of how their data is stored, either under the federal rules or case law. A widely noted case on this issue is Coleman Holdings v. Morgan Stanley & Co., No. CA 03-5045 AI (March 23, 2005), in which a $1.5 billion judgment was imposed against investment firm Morgan Stanley largely because it failed to produce thousands of potentially relevant backup tapes after telling the court no such tapes existed.
Companies that destroy documents on a regular basis need to have policies in place describing how that process works in order to defend against spoliation charges. But those same plans need to preserve potentially relevant documents for litigation.
“One side calls it negligence; one side calls it routine behavior,” Lambert says. “You need to have a culture of preservation and real policies to protect yourself. You have to be able to show that if you delete, you delete in good faith.”
The amended federal rules also try to introduce some mechanisms to make it easier for attorneys to produce huge volumes of electronic records without worrying about inadvertently producing privileged documents.
Under Rule 26(b)(5)(B), a party that inadvertently produces privileged information may ask for it back.
Parties also may enter into a type of “clawback” arrangement in which they agree to return documents mistakenly produced when they should have been excluded from discovery for privilege reasons.
Some lawyers aren’t impressed with this addition to the rules. “Unhelpful is one way to describe it; false comfort another,” says William Speros, an attorney and e-discovery consultant in Cleveland. “I’m uncertain that any legal mechanism can help you on that front. I put more faith in technology to protect against inadvertent disclosure.”
Others say the clawback provided for in Rule 26(b)(5)(B) is likely to be useful only when both parties have large volumes of documents. “It’s good when both sides have lots of documents, like if you had Ford v. Chevy,” Allman says. “But it’s not so good if one side has all the documents. It’s hard to get the other side to agree to clawback if they have no documents at risk.”
The amendments to the federal rules mean attorneys will have to change their approach in making discovery requests.
Before the amendments went into effect, attorneys could issue broad—sometimes overbroad—discovery requests and assume that details of what would really be produced would be hashed out over time.
But just as the rules mandate that attorneys know the location where discoverable documents might be, it also is incumbent upon them to craft targeted discovery requests. “The way your documents are written needs to be changed,” Tadler says. “You can’t just make a vague request for all relevant documents and wait for the other side to respond.”
In the course of working on major securities litigation, Tadler has developed detailed questionnaires and guidelines to help attorneys at Milberg Weiss navigate discovery.
“I like to think that our attorneys are well-armed with the tools and terminology so that when they meet with their adversaries, the other side knows we’re not joking around,” Tadler says.
Parties that are ahead of the game will be able to take advantage of amended Rule 34(b), which permits a requesting party to specify the form or forms in which it wants electronically stored information produced.
But if a request does not specify the form or forms for producing electronically stored information, the responding party must produce it in the form in which it is ordinarily maintained or in a form that is reasonably usable.
GETTING TO KNOW YOU
The implementation of the e-discovery amendments to the Federal Rules of Civil Procedure has helped bolster efforts to encourage both inside and outside counsel to better get to know the information technology people who work for their clients. Experts say this should involve bringing IT people to conferences about discovery issues.
“I’m working on training our attorneys on IT fundamentals,” says Francis from Baker Hostetler. “We’re going to have more interaction between clients’ IT and the litigation group to understand the technical issues of discovery.”
E-discovery consultants recommend that lawyers and their clients get to know and identify systems where discoverable information might reside. That involves identifying the people or groups likely to be targeted for litigation requests, where their data is stored and in what format. Experts also say companies need to have well-thought-out records-retention policies that take into account any obligations relating to discovery.
“In the paper world, businesses and law firms used to have a whole team of records management people,” Paul of Lewis & Roca says, “but now the way records are kept is left up to the way each individual chooses to manage their personal computer.”
But any records policy needs to be enforceable. “The real story around the [discovery] rules is that it’s not a simple matter of writing some aspirational documents you can bring to a meeting,” says Deidre Paknad, president & CEO of PSS Systems, an e-discovery consulting firm in Mountain View, Calif. “You have to really get a program with legal and IT to cooperate—and really change the way you work.”
Courts generally have held that information should be preserved as soon as litigation appears to be likely. For that reason, a records retention policy must include a plan to segregate, store and protect information from destruction without interrupting the normal course of business.
In Zubulake, for instance, Judge Scheindlin held that information potentially subject to discovery should have been preserved from the time it was reasonably foreseeable that an employee of UBS Warburg would file a discrimination suit, not just from when the case actually was filed.
“Laura Zubulake went to her human resources department and said, ‘I don’t like what’s going on around here, and I may take legal action,’ ” Speros says. “That was the sole trigger for what became a costly discrimination suit, and her employer eventually got sanctioned because they didn’t produce electronic evidence.”
But once a company puts a retention plan into place, the cost and burden of protecting information should go down over time because computer systems can be programmed to automatically store and protect data.
“The cost the first time you have to do it is high, but by the second one, you should just have to remember to push the button before you go home at night,” Speros says.
MORE TO COME
The rule-making process relating to e-discovery is not over. In November, the Advisory Committee on the Federal Rules of Evidence published for public comment a proposed new Rule 502. The committee is trying to determine whether inadvertent disclosure is a waiver in discovery, an issue that the Federal Rules of Civil Procedure do not address, except in a limited way in the clawback provision in Rule 26.
The issue of inadvertent disclosure is particularly thorny in e-discovery because the volume of data makes it practically impossible to avoid production of some privileged documents.
The proposed evidence rules amendments will be reviewed sometime in 2007 by the U.S. Judicial Conference’s Standing Committee on Rules of Practice and Procedure. In the meantime, the best tack for attorneys is to keep a detailed log that tracks sources of information and identifies which ones are likely to provide privileged information.
Meanwhile, some observers say the amended rules should make the discovery process more fair but may fail to rein in the cost of producing electronic documents.
“The rules mandate a duty to produce,” Paul says. “But they don’t concern themselves with cost except in cases where cost-shifting is necessary. That could be a burden if you’ve got a small-potato case with merit but don’t have the resources to fight an e-discovery battle.”
Since the rules have gone into effect, lawyers for both plaintiffs and defendants have begun to accommodate themselves to the new e-discovery regime.
Tadler was an early critic of the rules. But she says that through the comments process and deliberations by the Sedona Conference, a nonprofit legal studies organization based in Sedona, Ariz., constructive changes were made to the advisory committee’s original draft.
Thomas Allman, a member of the conference’s steering committee, says the amendments conform nicely with the overall purpose noted in Rule 1, which states that the rules are intended to facilitate the “just, speedy and inexpensive determination of every action.”
“I think the rules take into account the differences between paper and digital documents without losing the basic principle in Rule 1,” Allman says. “That’s the best you can hope for in a process like this—to not lose sight of the big goals.”
Rule 34, on Production
(a) Scope. Any party may serve on any other party a request (1) to produce 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.
Rule 16, on Pretrial Conferences and Scheduling
(b) Scheduling and Planning. The district judge shall enter a scheduling order that may include (5) provisions for disclosure or discovery of electronically stored information; (6) any agreements the parties reach for asserting claims of privilege or of protection as trial preparation material after production.
Rule 26, on General Discovery Provisions
(f) Conference of Parties; Planning for Discovery. The parties must, as soon as practicable confer to discuss any issues relating to preserving discoverable information, and to develop a proposed discovery plan that indicates the parties’ views and proposals concerning: (3) any issues relating to disclosure or discovery of electronically stored information, including the form or forms in which it should be produced.
Rule 37, on Failure to Make or Cooperate in Discovery
(f) 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.
Rule 26, on General Provisions Concerning Discovery
(b)(5)(B) If information is produced in discovery that is subject to a claim of privilege or of protection as trial preparation material, the party making the claim may notify any party that received the information of the claim and the basis for it. After being notified, a party must promptly return, sequester or destroy the specified information and any copies it has and may not use or disclose the information until the claim is resolved. The producing party must preserve the information until the claim is resolved.