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Boot Up Your Servers—New Electronic Discovery Rules Set to Take Effect

By Stanley A. Bowker

These days, nothing in litigation strikes fear into the hearts of attorneys and IT professionals alike more than the need to provide electronic discovery. The long-awaited amendments to the Federal Rules of Civil Procedure, dealing with issues relating to the discovery of electronic documents, are scheduled to become effective as of December 1, 2006. These new rules are of interest both to attorneys and their clients whose documents are subject to discovery. What follows is a brief overview of some of the more important changes that are on tap.

First, Rule 26(f) mandates a discussion of electronic discovery issues at the very beginning of a case at the discovery planning conference. Among the issues that must be addressed is the preservation of discoverable information. Prior to any such conference with opposing counsel, it is essential that the attorney establish the lay of the land with respect to her client’s documents, both electronic and good, old-fashioned paper. In this regard, discussions with the client and personnel from the client’s IT department are essential. Such discussions will focus on the location of potentially relevant documents and, crucially, the preservation of those documents. Recent court decisions, for example the widely reported Zubulake case, emphasize the critical responsibilities of counsel for insuring that relevant evidence is not destroyed. In this regard, counsel should consider sending a letter to the client at the beginning of the case, emphasizing the importance of document preservation, which may include a suspension of the client’s normal document retention policies.

Costly Electronic Discovery Failures

Failure to preserve relevant evidence can have dramatic effects. In the Zubulake case, the court issued an adverse inference instruction to the jury as a result of the failure of the defendant, UBS Warburg, to preserve certain relevant e-mails. Subsequently, the plaintiff won a jury verdict of over $29 million. Likewise, in a Florida state case, the financier Ron Perelman sued Morgan Stanley. As a result of certain discovery abuses relating to electronic documents, the judge issued an adverse inference instruction and a partial default judgment against Morgan Stanley. The jury subsequently returned a verdict of $1.45 billion in favor of Mr. Perelman’s company.

Many companies have document retention policies that specify how long certain categories of documents, both paper and electronic, should be preserved. For example, a company might have a policy that all e-mails older than 60 days are automatically deleted and that backup tapes are periodically written over. Such policies are highly advisable and have in fact been approved by the Supreme Court in the Arthur Andersen case. The Court noted that such policies “are created in part to keep certain information from getting into the hands of others, including the Government… It is, of course, not wrongful for a manager to instruct his employees to comply with a valid document retention policy under ordinary circumstances.”

Document Retention Policies Can Provide a “Safe Harbor”

The issue of document retention policies is addressed in the new rules. Rule 37(f) provides that a court may not impose sanctions 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.” This is the so-called “safe harbor” provision of the new rules. But, as Judge Shira Scheindlin has observed, it is a very shallow safe harbor. The Committee Note to Rule 37(f) emphasizes that “good faith” is essential and that “[g]ood faith in the routine operation of an information system may involve a party’s intervention to modify or suspend certain features of that routine operation to prevent the loss of information.”

In short, once a party becomes aware of the possibility of litigation, a duty is triggered to preserve relevant documents despite the existence of a document retention policy. Courts sometimes refer to the preservation of documents as the imposition of a “litigation hold.” Putting in place the litigation hold is one of the key actions that must be taken very early in the litigation process. As discussed earlier, failure to preserve documents can have very dramatic adverse consequences.

The “Two-Tier” Approach

Other issues addressed by the new rules include the so-called two-tier approach to the discovery of electronically stored information. In general, electronically stored information that is “reasonably accessible” must be produced. Rule 26(b)(2)(B) provides that information that is not reasonably accessible need not be produced. The rules do not provide a definition of reasonably accessible but it seems clear that reasonably accessible information consists of material that is accessed on a regular basis in the ordinary course of business. Not reasonably accessible information would include backup tapes (used for disaster recovery and other purposes) and “deleted” material.

While electronic documents that are not reasonably accessible need not be produced as an initial matter, the court nonetheless may order discovery of such information if the requesting party shows “good cause.” Moreover, the Committee Note to Rule 26(b)(2)(B) states that even not reasonably accessible information may be subject to preservation obligations. The effect of these new rules will doubtless be worked out in the courts. But the Zubulake case offers a good illustration of a likely practical effect in the context of backup tapes. Laura Zubulake was an employee of UBS Warburg who was fired. She sued, alleging sexual discrimination. Her initial document demand sought e-mails from certain specified employees of UBS Warburg. The response to the document demand was obviously incomplete because it did not include certain e-mails that Zubulake already had in her possession. Thereafter, it developed that additional possibly relevant e-mails might be found on a series of backup tapes in the possession of UBS. UBS claimed that it would be too expensive to try to resurrect the information on those backup tapes, but the court nonetheless ordered that a sample of the backup tapes be searched for relevant documents.

In Zubulake the backup tapes were apparently properly stored and the issue was the cost of recreating the data, which was placed, in large part, on UBS. Other companies have proven to be considerably more sloppy with respect to their backup tapes. For example, in the Morgan Stanley case, Morgan Stanley certified that, as of a certain point in time, all relevant e-mails had been handed over to the plaintiff. But at the same time the certification was made, the “storage folks” had already located an additional 1,400 backup tapes in a closet in a back office in Brooklyn. The court concluded that Morgan Stanley had deliberately violated its orders and was guilty of bad faith, which led to the very expensive consequences set forth above.

Form of Production for Electronic Documents

One final aspect of the new rules deserves mention, namely the question of the manner in which relevant electronic documents must be handed over to the requesting party. Rule 34(b) provides that the requesting party may specify ”the form or forms in which electronically stored information is to be produced.” Absent such a request, the electronic information must be produced “in a form or forms in which it is ordinarily maintained or in a form or forms that are reasonably usable.” The Committee Note to the rule observes that while a party is free to convert the electronic information from the form in which it is ordinarily maintained to a different form, that different form cannot make it more difficult or burdensome for the requesting party to use the information efficiently. For example, if the electronic information is ordinarily maintained in a way that is electronically searchable, a party would not be permitted to produce the information in non-searchable PDF format.

A related issue that will certainly arise is the question of metadata. An electronic document stored in Word format will, of course, have data that is visible on the computer screen. In addition, the document will have embedded metadata that will include considerable background information about the document, such as the author, the date of the last edit, and even material that has been deleted from previous versions of the document. A party producing such a document may not want the metadata to be viewed by its adversary and commercially available software exists that will “scrub” such metadata from the document. Is this permissible? Neither the rules nor the comments address specifically the question of metadata, but if the production is alleged to be in “native” format, i.e., in the manner in which the documents are ordinarily maintained, then it would appear that the metadata must be produced. At least one court has recently held that metadata may not be scrubbed without notice, and that electronic documents must be produced with their metadata intact absent timely objection.

In sum, the new rules will have a significant impact on the discovery process. Computer phobia is no longer an option. Attorneys and their clients must carefully study these rules now and make plans for adapting to the new regime.

ABOUT THE AUTHOR

Stanley A. Bowker is an attorney in Anderson Kill’s New York office and is a member of the firm’s commercial litigation group. He has litigated extensively on behalf of both plaintiffs and defendants, in such areas as securities fraud, consumer fraud, breach of contract, theft of trade secrets and general corporate law. He has also been involved in bankruptcy-related litigation.

Reprinted with permission from the Autumn 2006 issue of Commercial Litigation Advisor, published by Anderson Kill & Olick, P.C.

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December 2006