Electronic discovery

Recognised nationally in the US as a frequent speaker and author on electronic discovery, a partner at K&L Gates in Seattle, Washington, joins a colleague in sharing lessons learnt from the introduction and practice of e-discovery in pursuit of evidence in electronic form.

By Martha Dawson and Trudy Tessaro

Electronic discovery is a dynamic area of the law that continues to evolve, particularly in the US. The rules governing civil litigation in US federal courts were amended in 2006 to specifically address the discovery of electronically-stored information (ESI). Primarily these amendments were to:

Require early attention to e-discovery issues;
Provide guidelines for limiting discovery of ESI that is not “reasonably accessible; because of undue burden or cost”;
Address issues relating to the format of production of ESI;
Establish ‘clawback’ procedures for inadvertently-produced privileged documents;
Establish a ‘safe harbor’ that protects a party, absent exceptional circumstances, from the imposition of sanctions for failing to provide ESI lost as a result of the routine, good-faith operation of an electronic information system.

In addition, at least 38 federal courts now require compliance with special local rules, forms or guidelines addressing the discovery of ESI. In some districts, where there are no local rules or court-mandated forms, individual judges have created their own forms, or set out their own preferred protocols, for e-discovery. State courts are increasingly adopting statutes and rules addressing the discovery of ESI, and others are actively considering whether to follow suit.
These court rules do not generally impose any requirements on companies outside the litigation process. But even companies not currently involved in litigation may be subject to the duty to preserve evidence once litigation becomes reasonably foreseeable, or when served with a subpoena. Broadly stated, the duty to preserve requires a party “to preserve what it knows, or reasonably should know, is relevant in the action, is reasonably calculated to lead to the discovery of admissible evidence, is reasonably likely to be requested during discovery, and/or is the subject of a pending discovery request”.
Parties that fail to appreciate the unique challenges posed by ESI, or fail to ensure they are taking adequate steps to meet their discovery obligations in litigation, may face dire consequences. Even ordinary negligence in breaching a discovery duty may be sufficient basis for a court to impose sanctions. News headlines detailing extreme sanctions for e-discovery missteps in the US, or announcing multi-million dollar verdicts awarded because of ‘smoking gun’ e-mails, have become increasingly common.
If you’re not currently involved in litigation or an investigation and don’t expect such involvement in the future, then you may believe e-discovery is not something about your company needs to fret. Unless you have a reliable crystal ball, however, it’s largely impossible to predict whether your company will be involved in a lawsuit or investigatory action where ESI is at issue. And, if your IT department isn’t prepared, and you suddenly find yourself involved in a lawsuit, it may be too late to take the appropriate action.
This article explains why e-discovery is something all companies need to understand, and suggests a number of best-practice steps to help companies prepare for possible future e-discovery.

In today’s business world electronic documents dominate
Advances in computer technology have changed the way individuals and organisations conduct business and maintain records. It is estimated that over 93 per cent of new information is now created and stored electronically; much never reduced to printed form.
As storage of electronic information has become virtually effortless for computer users, and continually less expensive, many companies are finding they possess vast quantities of electronic information - unlike anything they would have accumulated in the paper world. In addition, much of the electronic material stored can be unorganised. In contrast to paper records, which are typically sorted by subject matter and require some physical effort to organise and file, electronic records require little, if any, effort to retain, and aren't necessarily stored in any rational order. Employees may simply move the material into one huge folder, without taking the time and effort to sort it in any meaningful way.
What’s more, much electronic material is often retained for no particular reason at all, without regard to its relevance (or lack thereof) to the company’s ongoing business. Employees who spend most of their workday at their computers may send and receive hundreds of e-mails over the course of a day or week, many of which are the functional equivalent – and indeed the replacement – of a casual phone call or hallway conversation among co-workers. Although many of these e-mails have no lasting business value, employees may simply keep everything by default, since it is easy to do, and because it would require more time and effort to cull the truly significant ones and store them in a coherent fashion.
Thus, while technological advances have generally improved worker productivity, an unintended consequence has been a significant increase in litigation costs and inefficiencies associated with the collection, search, review and production of vast quantities of ESI in discovery.

E-discovery blunders may have grave consequences
US courts have broad discretion to fashion sanctions for a party’s e-discovery failings. For lesser infractions, courts may bar a party from introducing certain material at trial, or bar the testimony of particular witnesses at trial, or preclude a party from introducing any evidence or argument pertaining to a specific topic. Another possible sanction is an adverse inference instruction, typically sought when a party has failed to preserve potentially relevant evidence. The instruction allows a jury to infer from the fact a party lost or destroyed certain evidence that the evidence, if available, would have been favorable to the party’s opponent and harmful to the party who destroyed it.
More severe sanctions are likely when a party’s discovery failings are grossly reckless or deliberate. In extreme cases, a court may strike a party’s pleadings and enter judgment against it. Several courts have imposed litigation-ending sanctions against parties who (unsuccessfully) attempted to delete damaging evidence from their computers using special disk wiping software (inaptly) named Evidence Eliminator or Data Eraser. In one court hearing, a civil case even suggested that incarceration of a party’s CEO might be an appropriate sanction for discovery misconduct. Indeed, the Arthur Andersen case illustrates that criminal charges may follow a party’s wrongful destruction of relevant evidence.

Many companies are unprepared for e-discovery
Although awareness of electronic discovery issues is becoming more widespread, many companies are nonetheless ill prepared for the possibility of ESI being used in litigation. A recent survey of records-management professionals elicited a number of troubling revelations. On the subject of record-retention policies, 30 per cent of the organisations represented did not include electronic records in their retention schedules, and 51 per cent did not have any formal e-mail retention policy. Regarding legal holds – the mechanism by which parties involved in litigation preserve potentially relevant information – 45 per cent of the respondents’ organisations did not have a formal system for implementing legal holds, and 44 per cent reported electronic records were not included in their organisation’s legal holds.
The survey concluded “the majority of organisations are not prepared to meet many of their current or future compliance, legal and governance responsibilities because of the deficiencies in the way they currently manage their electronic records”, and that the outstanding challenges associated with the management of electronic information assets “have the potential to be devastating in terms of costs, professional careers, and even corporate reputations”.

Best practices for avoiding e-discovery pitfalls
Long before litigation arises, there are a number of steps a company can take to better prepare for future e-discovery requests. These common business practices can help reduce the volume of irrelevant and non-essential ESI maintained by a company and put the company in a better position to quickly and accurately identify and preserve potential sources of relevant ESI when faced with the possibility of litigation. These are practices worthy of consideration even if you believe your company will never be involved in US-style litigation, or international arbitration involving ESI:

1. Adopt a records-management policy that retains records only for as long as they are needed for business or legal compliance.
Companies don't need to save everything. Instead, enact a records-management policy, supported by a retention schedule that preserves documents and ESI, only for as long as required for business needs and legal compliance.
While such policies have a purpose well beyond litigation and discovery concerns, they can be invaluable at controlling the cost and complexity of e-discovery. With the absence of actual or potential litigation, take the opportunity to get your house in order, to train your employees on the importance of records management, and to implement a records-management policy that works for your company. Such a policy must include a legal hold process, suspending your records-retention policy when litigation is reasonably anticipated or probable.
Although a full discussion of all considerations relevant to the adoption of a records-retention policy is beyond the scope of this article, the touchstone of any document retention program is reasonableness. The policy must be reasonable considering the facts and circumstances surrounding the relevant documents. And given the ubiquity of computers today, a records-retention policy should specifically address e-mail and other ESI.

2. Ensure backup media are used solely for disaster recovery purposes.
Disaster-recovery media are a matter of particular concern, both because of the volume of information and the potential cost of restoring and searching backup tapes or disks. Backup media should be used solely for disaster recovery and kept for the shortest period of time necessary to achieve that goal. For example, if an organisation backs up its systems on a weekly or monthly basis, there is typically no reason to retain tapes that are older than the most recent one or two rounds of backups. The reason is simple – if a catastrophic loss of data occurred and an organisation needed to restore as much information as possible, last week’s backup tapes would most effectively accomplish that goal.
Many do not appreciate the difference between disaster recovery systems and proper archives or long-term records retention. Companies may hold onto backup tapes for years, treating them as ad hoc corporate archives. Do not use backup tapes as archives. While the federal discovery rules provide some discovery protection for ESI deemed “not reasonably accessible because of undue burden or cost”, you may undermine such arguments if you actively use backup tapes for archival purposes instead.

3. Train staff to use e-mail and other IT resources properly.
A single ill-considered, cynical or sarcastic e-mail or instant message generated by one employee can be used against an entire company in litigation or arbitration. You should sensitise employees to the dangers of electronic communications and adopt an acceptable use policy that prohibits use of company resources in ways that violate the company’s anti-discrimination policy, to transmit sexual or pornographic content (including off-color remarks or jokes) or to transmit material that may be copyrighted or otherwise protected.
The policy should include notice that no right of privacy exists in information sent or received using company resources, and that use of e-mail, instant messaging, the Internet and other IT resources will be monitored.

4. Be ready to roll out a ‘legal hold’.
No matter what type of records-retention program is put in place, normal retention practices must immediately be suspended with regard to material that is relevant to threatened or pending litigation. As part of a records-retention program, companies must have a procedure to identify potential disputes and protect the corresponding documents and ESI. Be ready to identify the key players and computer systems that may store relevant material, and choose reasonable and appropriate means of preserving the material. It is important for the IT department to be included in this process, and that the ‘key players’ in the underlying dispute are interviewed in order to understand how they, personally, stored information to ensure all potential sources of information have been considered.

Conclusion
Use your company’s existing technology to your advantage to manage the wealth of information contained in your ESI. Combined with these ‘best practices’, your company will then be in a better position to respond to the challenges of e-discovery, whether in litigation, arbitration, or simply for an internal investigation.

Martha J. Dawson is a partner at K&L Gates in Seattle, Washington, US and co-leads K&L Gates’ e-Discovery Analysis & Technology Group. Firm website: www.klgates.com; eDAT Blog: www.ediscoverylaw.com. E-mail: martha.dawson@klgates.com

Trudy Tessaro is a special project department attorney in K&L Gates’ eDAT Group in Seattle, and is the principal author of the group’s E-Discovery Law Blog, www.ediscoverylaw.com. E-mail: trudy.tessaro@klgates.com