Report from Hearing on Proposed Rule 502 of Federal Rules of Evidence

On January 29, 2007, the Advisory Committee on Evidence Rules held its second and last hearing on proposed Federal Rule of Evidence 502. The committee heard testimony from criminal defense attorneys, trade associations, in-house lawyers, litigation support consultants, and other interested parties.

All witnesses except one opposed proposed Rule 502(c), a rule to facilitate selective waiver in governement investigations or proceedings. The general sentiment of those who oppose the adoption of Rule 502(c) is that the rule would increase government requests for waivers. No witness made a showing to indicate why that would happen, and they seemed to fall short of convincing the committee that Rule 502(c) is bad idea as a matter of public policy. Nevertheless, there is enough ambivalence to suggest Rule 502(c) may not survive and be part of the final recommendations.

Several committee members said such a rule would be a positive development and would not encourage more waiver requests. If companies are waiving privileges anyway, this rule would help and safeguard against broad subject matter waiver in collateral civil proceedings. There are significant questions, however, whether a federal rule of evidence could have binding effect in state and local proceedings. There were no constitutional law scholars testifying on January 29 or anyone present able to help the committee on federalism questions. The committee also did not have an answer for how protection from disclosure to government officials would protect a corporation against waiver for disclosing investigation results to auditors or indepedent outside directors.
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A Year Later — Rough Waters Ahead for e-Discovery and the New Federal Rules of Civil Procedure

By Beryl Howell and Rick Wolf 

Escalating legal risks are forcing organizations to bring order to sprawling information technology and telecommunication systems. According to the 2006 Business Roundtable Survey, chief executive officers rank litigation among their top cost pressures, behind only health care and energy costs. Other surveys show that most organizations lack effective and enforceable records management policies; and ediscovery readiness tops the list of litigation concerns for corporate law departments. And no wonder: Companies have faced stiff penalties for failing to manage, preserve, and efficiently produce electronically stored information in discovery. As a principal evidentiary source, email content is yielding plea bargains and early settlements for prosecutors, regulators, and private litigants.

When litigation looms, ineffective corporate records management practices can expose organizations to legal problems that extend beyond the litigation itself. At the start of every civil or criminal matter-even before formal proceedings have begun-you have to make key decisions about what data must be preserved: Do email or file system backup tape recycling schedules need to be suspended, and if so, for how long? Do automatic deletion system settings that limit the size or content date range of email boxes have to be modified? Does a computer “refresh” have to be delayed? Do marketing materials on corporate websites have to be preserved before being updated? Your management team must work together to have ready answers to these and other such questions, as law departments alone cannot perfect the varied business processes and systems necessary to manage electronically stored information.

Click here for a complete copy of Rough Waters Ahead for e-Discovery and the New Federal Rules of Civil Procedure.

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Shifting Roles and Responsibilities: Litigation Management, Outsourcing and the Emerging Role of the E-Discovery Czar

The new Federal Rules of Civil Procedure are having a profound and lasting impact on how companies manage litigation. The rules changes will prompt companies to create a new corporate function that blends legal, IT, compliance and operational expertise. Litigation support managers (aka paralegals) may, in the near term, be asked to fill this new hybrid role.

Meanwhile, the telephone lines of legal/tech placement and executive search firms are smoking, but there are few, if any, qualified candidates in the market place to be had.

This new role is needed because obligations to preserve electronically stored information (e.g, email and other unstructured data like presentations, letters and spreadsheets) are triggered well before a corporate law department assigns a new case to outside counsel. In addition to the obvious legal risks involved, the cost of preserving, searching, reviewing and producing e-discovery is very expensive and needs full-time management attention. Lawyers are not suited to play point guard and manage the labor-intensive duties involving IT systems mapping, compliance monitoring and vendor management — all regular duties associated with the Brave New World of e-Discovery.


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Maker of Popular Game “Grand Theft Auto” Finds Evidence of Backdating…

Take-two Interactive Software, Inc., publisher of smash hit PC video game Grand Theft Auto, said in an SEC filing that its has uncovered a “pattern and practice of backdating options” during the tenure of its former chairman and chief executive officer Ryan Bryant. This disclosure apparently was expected, as the company anticipates restating earnings going all the way back to 1997 in connection with these irregularities.

For more on this latest backdating disclosure see the story on examiner.com. See also the outcome of the SEC action and parallel NY State plea agreement.

The Heat is On: Time for Human Resources Professionals to Stand up and Be Counted

In a post earlier this week “Backdating and the Candyman: Where was the Human Resources Executive?,” we questioned the accountability of HR in the backdating scandals erupting across public companies in the United States.

Yesterday, an Economist Intelligence Unit in Great Britain released a survey that shows CEOs place personnel issues atop their priority list for 2007, but business leaders overwhelming fear that HR professionals simply are not up to the task.

For more see personneltoday.com

The Corporate “Hot Potato” — Law Department Wants Help from IT, HR and Compliance on Records Management Policymaking

Launching and sustaining an effective records management compliance program is a daunting task and no corporate function is eager to be accountable for the enterprise and report to the chairman on this complex area. Each department has a different reason for shunning ownership of records management policy or enterprise content management.

For some, there is only downside to getting involved in an initiative that has dubious chances for success. For IT executives, the transparency of an effective compliance program with processes and systems for understanding how information gets retained and purged, would require a clear view into and rationalization of the massive and sprawling systems that have grown over time. This is not an indictment on past practices; organizations simply need to get going and bring order to the chaos.

New compliance areas typically start with the law department, according to most studies, as the organization needs to understand legal requirements to establish new policy. The Federal Rules of Civil Procedure have delivered records management duties on the doorstep of the general counsel. Bringing a records management compliance program to life is beyond the skillset of most lawyers, particularly with regard to developing controls to manage electronically stored information. The law department needs major and sustained help from the IT, HR and compliance departments.

The problem is a real one. Most every general counsel views records management as a high risk item and a priority, yet few are comfortable with the enforceability of their organization’s records management policy. This fact is confirmed in a recent study by the General Counsel Roundtable and a poll taken last week during a Webcast hosted by Compliance Week on the new Federal Rules of Civil Procedure.

The fundamental gaps in corporate governance need to be filled quickly and someone needs to own enterprise content management. Stay tuned….


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Backdating and the Candyman: Where was the Human Resources Executive?

When we read about impending indictments and disbarments of generals counsel in the stock option backdating scandals, and the many more SEC investigations pending, who else in the corporate chain of command is responsible for these bad acts?

Backdating is more than gaming the system or using your position in an organization for personal gain. Backdating is a crime and SEC civil violation, which is an outgrowth of the ethical misconduct corporate compliance programs are supposed to prevent.

Let’s consider the governance in an organization and the many involved who fail to do the right thing or speak up. What was the role of the human resources executive in these cases? HR is the first to point out that they are the ones who “give out the candy” to executives, but where are these back-slappers and glad-handers now? Surely, the general counsel has a duty to counsel management on submissions to the compensation committee and the SEC and the rules of professional conduct expect the general counsel to act as gatekeeper. But the human resources executive originates these compensation plans with crafty consultants and if implicated in one of these cases, should be subject to scrutiny and barred from serving as an officer in a public company. What’s fair is fair.


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