E-Discovery: A New Wrinkle In Litigation
By: Thomas A. Gray
May 1, 2007
To say that businesses now rely upon electronic communication and data storage is an understatement – nearly every business communicates or does business electronically. What businesses rarely consider, however, is that such activity creates stored electronic information that may be relevant in the event of a lawsuit. When a suit is filed, the parties can request information from each other through a process called “discovery.” Cases filed in Federal court are now faced with a new wrinkle in the discovery process – that is “e-discovery.”
The Federal Rules of Civil Procedure (the “Rules”) have recently been revised to provide uniformity and guidance to litigants as to how to conduct discovery of electronically stored information (“ESI”). When faced with potential federal litigation, businesses that rely upon ESI must be aware of their increased responsibility to properly preserve and produce such information. They should also be prepared to introduce their information technology (“IT”) staff to their attorney.
The revised Rules now force attorneys to know more about their client’s electronic data systems than ever before. In order to comply with the revised Rules, which became effective on December 1, 2006, attorneys must thoroughly understand their clients’ information systems, document management systems, data storage, and data destruction practices. This understanding becomes immediately necessary once federal litigation has begun, as the revised Rules require the parties to develop a plan for handling the discovery of ESI. The discovery of ESI includes e-mails, web pages, word processing files, computer databases, and virtually anything that is stored on a computer or can only be read though the use of a computer. A brief overview of several of the revised rules follows to illustrate the significance of a shared understanding of the ESI environment between a business and its attorney.
Revised Rule 26(f) provides that as soon as practical all parties must “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…” When litigation is reasonably anticipated, the revised Rules require the parties to take steps to preserve potentially relevant ESI along with other paper documentation. ESI can be destroyed in seconds unless the client takes affirmative steps – for instance, some ESI may be scheduled for automatic destruction under an established retention policy.
At the beginning of any litigation, therefore, an attorney and client must discuss how the client will preserve documents. Businesses should be prepared to send a “litigation hold” notice to each and every employee who may have knowledge and control over relevant documentation. The litigation hold notice must specifically direct the employees to locate, preserve, and not destroy any relevant documentation, including ESI. The litigation hold notice must also specify that all automatic purging of potentially relevant information must be stopped and documented.
The revised Rules recognize that some potentially discoverable information may have been lost or overwritten as part of a client’s normal deletion of ESI and that businesses should not be penalized for such good faith business practices. Thus, Rule 37 was revised to add subsection (f) providing that: “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.” This “safe harbor” provision provides some protection for unintentionally destroyed ESI. A reasonable and timely litigation hold notice not only preserves relevant evidence that may assist a client’s case, it may also serve as a defense to an opponent’s accusation that the client has failed to preserve evidence. All businesses must be prepared to distribute litigation hold notices and preserve potentially discoverable information.
Revised Rule 26(a)(1)(B) provides that parties must, without waiting for a request, provide to the other parties “a copy of, or a description by category and location of, all documents, electronically stored information, and tangible things that are in the possession, custody, or control of the party and that the disclosing party may use to support its claims or defenses…” Once again, this amendment requires businesses and their attorneys to confer as soon as possible as to whether they will rely on any ESI in support or defense of their respective claims.
Failure of a business to properly preserve, account for, and educate its attorney as to its ESI can severely impact the outcome of any litigation. Courts have imposed harsh penalties for failure to properly preserve relevant ESI, or to research deeply enough into all electronic archives. The penalties have included sanctions in the form of dismissal, adverse inferences, striking of claims and defenses, and payment of all or a portion of the opposing party’s attorney’s fees.
The above details highlight just a few of the recent revisions to the Federal Rules of Civil Procedure and how they relate to electronically stored information. Although ESI is discoverable in state court suits as well, state courts are expected to soon follow the lead of the federal courts in establishing specific rules to govern the discovery of ESI. Businesses that have planned and invested in an organized and well-managed information and document management system will find themselves better prepared should litigation loom on the horizon. An important aspect of such planning should be to educate your attorney as to your document management systems, data storage, and data destruction. Introducing your IT staff to your attorney may be the best place to start.
Failure to adequately prepare for handling ESI can lead to significant consequences under the revised Rules of federal litigation. We encourage you to contact legal counsel when confronted with potential litigation, particularly when ESI plays a significant role in your business operations.
ABOUT THE AUTHOR
Tom Gray is a partner in the firm and member of the firm’s creditors’ rights practice group. He concentrates his practice in commercial litigation, equipment leasing and finance, creditors’ rights, and construction law, representing a variety of businesses and individuals through all stages of commercial litigation. He also represents national and local equipment leasing companies and their financing sources seeking to enforce their rights pursuant to the lease, including the recovery of amounts due, recovery of equipment, and representation of creditors in bankruptcy court.