Companies Still Struggling To Find Way on E-Discovery

By Beth Bar
December 20, 2007

One year after revisions to the Federal Rules of Civil Procedure (FRCP) were put in place to address confusion and increased costs associated with electronic discovery, corporations are still struggling to comply with the new guidelines.

“Companies are taking a pro-active approach to electronic discovery,” said Allison L. Brecher, who is litigation counsel and e-discovery coordinator at Marsh & McLennan Companies. “The burdens of compliance, though, remain very difficult.”

Although it may be too early to gauge the ultimate impact of the rules, which went into effect on Dec. 1, 2006, attorneys agree that businesses are spending more money and time on electronic discovery.

The stakes are high. Companies that neglect the new obligations may face sanctions if they cannot produce evidence sought in litigation.

The short-term burdens of complying are reflected in several recent surveys.  Some of the findings:

• Almost 55 percent of the 140 in-house counsel surveyed by the e-discovery consultant Lexakos said their companies needed to spend more time developing e-discovery and litigation readiness plans.
• Fifty two percent agreed that they had to improve their litigation hold procedures, which require companies to preserve all data that may relate to a legal action involving the company. And almost half expressed the need to develop a process to segregate privileged communications and thus avoid high document review costs.
• Of the 76 people surveyed by Lexis Nexis at the Association of Corporate Counsel’s annual meeting, 44 percent said that their companies had not been prepared for the new rules. Although 61 percent said they were now very or somewhat confident that they were fully compliant, 30 percent still said that they were not very confident and 5 percent not at all confident.
• Twenty seven percent of respondents to a litigation trends survey released earlier this year by Fulbright & Jaworski said that the rules have made handling of e-discovery issues in federal litigation more difficult. Eighteen percent said they have made the process at least somewhat easier. The remainder detected no change.

The amendments includes revisions and additions to Rules 16, 26, 33, 34, 37 and 45, as well as Form 35. Among the matters addressed were the definition of discoverable material, the procedure for asserting privilege or work product after production and the early attention to electronic discovery issues.

The new protocols have made e-discovery compliance a prime litigation issue. H. Christopher Boehning of Paul, Weiss, Rifkind, Wharton & Garrison said that cases are increasingly being dismissed or companies heavily sanctioned based on the loss of electronic evidence.

“Cases are being derailed as a result of discovery issues,” Mr. Boehning said. “You want cases to be decided based on the merits, not on an e-discovery sideshow.”

So far, Mr. Boehning said, the rules have not improved the situation.

“Everybody is still trying to find their way,” he said.

Under the revised rules, parties have no initial duty to produce electronic data that is reasonably identified as inaccessible. A judge, however, can still order the evidence to be produced if she or he deems that there is good cause.

The rules also allow for a subpoena to be served to “permit inspection, copying, testing, or sampling” of electronically stored information.

This occurred in the recent Southern District case, Bridgeport Music v. UMG Recordings, 05 Civ. 6430. In this copyright infringement dispute, defendants UMG Recordings, Napster, Apple Computer and Yahoo! deposed attorney Stewart L. Levy, a nonparty, during discovery and subsequently issued a subpoena seeking production of certain licencing agreements for “new media.”

Bridgeport Music and Southfield Music argued that production of these documents would be unduly burdensome. But Magistrate Judge James C. Francis IV disagreed. In a decision that will be published in the Law Journal on Dec. 27, he ruled that the burden of production was “not so great as to justify quashing the subpoena, even if it is imposed upon a nonparty such as Mr. Levy.”

Costs for complying with the new discovery rules can run into hundreds of thousands of dollars.

High Cost of Preservation

Courtney Ingraffia Barton, an attorney who is vice president of industry relations for LexisNexis Applied Discovery, and Deborah House, Association of Corporate Counsel’s vice president and deputy general counsel, said that one of the biggest challenges companies are facing is securing the resources to implement a system that addresses electronic discovery issues.

David J. Lender, a partner at Weil, Gotshal & Manges, acknowledged that creating an electronic document preservation system is costly, but said that companies save money in the long run because they save on litigation expenses by having a system already in place.

And Adam I. Cohen, co-chair of the New York State Bar Association’s e-discovery committee, said that a documented process for handling information is beneficial in litigation.

“If mistakes are made you can defend your good faith by showing that you have devoted resources and developed methods” for dealing with this type of data, Mr. Cohen said.

Ms. Brecher of Marsh & McLennan, said her company was using a “team-based” approach.

“We are partnering with the IT department, and educating each other,” Ms. Brecher said.

She said that sometimes this education takes the form of training sessions and may involve bringing an information technology colleague to an e-discovery seminar.

Patrick Oot, director of electronic discovery and senior counsel in Verizon’s legal department, said that his company has developed a litigation manual that identifies the company’s policies with regards to electronic document preservation. It also identifies the specific actions that information technology and in-house legal counsel must take.

He said that having some type of efficient and uniform process for dealing with data requests is “invaluable.”

However, Robert D. Owen, a partner at Fulbright who is co-head of the firm’s e-discovery and information management practice group, said that rather than instituting e-discovery policies, many companies have decided to play “the e-discovery lottery.”

“They have decided to take the chance that they won’t be hit,” Mr. Owen said. “It’s a gamble.”

Prediction for 2008: Avoiding Inadvertent Disclosure of Privileged Information becomes Top E-discovery Risk and Costs More than Complying with the FRCP

We have a year under our belt with the amended Federal Rules of Civil Procedure and the new procedures might not have caused as much immediate collateral damage as expected.  After all, the rules are procedural and did not affect substantive rights.  While the common law interpretation of the new procedures continues to evolve in practice, quickly emerging on the horizon is a substantive law that will, by comparison, rock the legal world — new Rule 502 of the Federal Rules of Evidence. 

There is much uncertainty, even among many lawyers, as to when the attorney-client privilege should be invoked or asserted.  Let’s face it, business people, and lawyers too, insist on using email for everything.  Hence, operationally, there are numerous challenges we all face in protecting confidential information from leaking through email forwarded to third parties.

In the context of records and information management, this is an increasingly important area.  New Federal Rule of Evidence 502 is scheduled to take effect in December 2008. The rule codifies circumstances in which a party might inadvertently disclose privileged information without waiving privileges. If “reasonable steps” are taken to avoid disclosure (e.g., measures taken before producing information to an adverse party) but some information accidentally gets in the hands of a third party, there would not be a waiver.  Good RIM policy and procedures would constitute reasonable steps. If you review the notes to the new rule, which are provided in earlier posts on this blog, you will find reference to this notion.  I testified on this specific subject before the Advisory Committee on Evidence Rules in January 2007.

The doctrine of inadvertent waiver is an area of great concern to all generals counsel in the United States, as a recent Lexakos survey of chief legal officers demonstrates. The subject of privilege waiver is an area lawyers, compliance officers, IT and RIM professionals need to study and better understand.  2008 should be an interesting year!

Best wishes to all for a happy holiday season!

CIA tape destruction offers cautionary tale for CIOs — Companies face big fines for not producing electronic evidence

December 10, 2007 (IDG News Service) — The recent revelation that the U.S. Central Intelligence Agency destroyed videotapes of interrogations of two terrorist suspects may offer a timely reminder for CIOs at private companies in the U.S. tasked with electronic evidence preservation rules since last December.The e-discovery rules — amendments to U.S. courts’ Federal Rules of Civil Procedure — don’t apply to the CIA. But the agency’s decision to destroy videotapes showing harsh interrogation techniques may teach private companies how not to handle evidence, some e-discovery experts said.

The e-discovery rules require U.S. companies to keep electronic records when they’re faced with a civil lawsuit or the likelihood of a lawsuit. In effect, what this means is that companies should archive e-mail and other electronic records, said Ralph Harvey, CEO of Forensic & Compliance Systems Ltd., an e-mail archiving vendor based in Dublin.

For more see ComputerWorld.com.

Records Management: A Governance Crisis?

By Elizabeth Judd – Compliance Week — December 4, 2007

A new survey says that only 7 percent of senior executives and board directors consider records management a top issue for their company-compared to a whopping 40 percent of law departments on the front lines of litigation and growing demands for speed access to relevant electronic data.

The study, the Chief Legal Officer 2008 Strategic Planning Survey by consulting firm Lexakos, validates a growing suspicion among records management experts that too many executives still don’t understand the rapidly proliferating collection of data their companies are amassing and the attendant legal risks.

“A Post-It note may seem like a nothing, but it may be the core of a legal case,” notes Carol Choksy, president of ARMA International, the trade association for records and information management professionals, and CEO of IRAD Strategic Consulting.

Even the term “records management” is subject to debate. Some refer to “Records” with a capital “R,” classifying only personnel, tax, and environmental documents in that category. Official records like these are fairly easy to manage; regulations often stipulate how long they must be kept, and companies generally treat these documents with care.

More worrisome are the e-mails, random jottings, voicemails, instant messages, and other informal communiqués that employees generate every day. New “e-discovery” rules for how to handle such information in civil litigation, now in place for a year, do shine a spotlight on this area. Unfortunately, they seem to be illuminating the fact that most employees just don’t know how to handle these impromptu records.

“For most communications, there’s a fast-food mentality. You fire off an e-mail, and that’s how people communicate,” says Rick Wolf, founder of Lexakos and former chief compliance officer of the now-defunct Cendant Corp. He notes that an estimated 97 billion business e-mails are generated each day worldwide, nearly five times the volume just five years ago.

This over-accumulation of information-Wolf calls it “corporate plaque” -creates legal risk. Wolf says companies have “poor processes and controls around how people communicate.”

That shouldn’t be so, he argues. With e-mail messages turning out to be a smoking gun in everything from Microsoft’s antitrust trial to the collapse of Arthur Andersen five years ago, “Records management is becoming difficult to trump as a priority,” he says. “And to a company, no one’s comfortable that they’re nailing this thing.”

Office of Special Counsel chief under fire for erasing computer files

By Dan Friedman

November 28, 2007 — Conflict of interest charges flew Wednesday after a report that Special Counsel Scott Bloch, whose office is investigating improper White House political activity, erased computer files that may affect a separate probe into his own conduct.

Bloch’s Office of Special Counsel, which investigates violations of government personnel rules, gained attention last spring when he announced a probe into whether briefings on electoral politics — given to appointees at most agencies by former White House political aide Karl Rove or his aides — led to violations of the Hatch Act, which bars use of government resources for partisan politics.

But when he announced the probe, Bloch faced an investigation into whether he politicized his office and retaliated against whistleblowers who opposed his policies, among them how OSC processes whistleblower complaints. The Wall Street Journal reported Wednesday that the Office of Personnel Management’s inspector general, who leads the two-and-one-half-year-old investigation into Bloch, has learned the special counsel used agency funds to pay a computer-help company for a so-called seven-level wipe of his computer and those of two former aides. The wipe can prevent experts from recovering data.

Ironically, one of the areas targeted by OSC’s wide-ranging investigation is White House officials’ heavy use of campaign e-mail accounts. The White House has said many of the e-mails, which congressional critics have charged may have been used to mask improper political activity, were accidently erased. OSC has said it needs a budget increase for the Hatch Act probe to cover expenses including computer forensics equipment for such tasks as searching computer hard drives for deleted files. An OSC spokesman said Wednesday that the agency’s investigation is not now focused on e-mails.

For more see CongressDaily.

Employee E-Mails to Personal Attorney Using Company E-Mail Systems Are Not Privileged

Employee messages to his attorney sent over the employer’s e-mail system, a practice against company policy, are not protected by attorney-client privilege or the work product doctrine under New York state law.  In denying the employee’s motion for a protective order, the court in Scott v. Beth Israel Medical Center (“BIMC”) precluded the employer from viewing Scott’s e-mails to his attorney from his BIMC account. In finding that the employee waived privilege, the court concluded that BIMC had an e-mail policy banning personal use and that Scott had constructive notice that BIMC had the right to monitor e-mail communications over its network. The court also rejected Scott’s work product doctrine argument based upon his attorney’s confidentiality notice e-mail footer, holding that the attorney’s confidentiality notice at the end of e-mails was “insufficient and not a reasonable precaution” to create a qualified privilege against disclosure.

See Scott v. Beth Israel Medical Center Inc., No. 602736/06, 2007 N.Y. Misc. LEXIS 7114 (N.Y. Sup. Ct. N.Y. Cty Oct. 17, 2007).

What Comes First — The RFP or the Consultant? Some Helpful Tips for Corporate Lawyers not Accustomed to Formulating or Responding to a Request for Proposal

There is no one-size-fits-all template for a professional services RFP, and certainly not with regards to implementing a global records and information management program.  If you decide to use a template from your friends in procurement or one you find online, certain attributes should be included in an RFP when undertaking a project of importance.   These are the basic steps I would take in phase one.  I am happy to confer with others on the wisdom or even shortcomings of this approach, on or offline.

• Identify an advisor or consultant to assist with conducting a high-level gaps analysis on a fix-rate basis. The fixed rate is important because you need predictability of cost at the outset before getting approval to undertake a more broad, global project. There is, admittedly, somewhat of a “what comes first, the chicken or the egg” dilemma, but you need to define your scope and needs up front. A good gaps analysis should include a review of documents, processes, policies and procedures, and governance relative to records management compliance on the paper and electronic side of the equation.

• A gaps analysis would produce a project definition document (“PDD”) that includes, among other things, (i) RFP template based on gaps/findings, (ii) proposed budget and financial model, (iii) analysis of reasonable alternatives (e.g., buy versus build), (iv) resource allocation, and (v) presentation with executive summary for management consideration and ultimate approval. With budget approval and a PDD in hand, you will be in a position to tailor your RFP to your specific need and efficiently entertain bids for work in this area.

• The gaps analysis and PDD phase of a moderate to complex sized project should take no more than 2 to 4 weeks to complete, based on availability of company personnel (for limited interviews and kick off meetings) and documentation for due diligence.

• When going through the RFP exercise, vendors should be subject to an agreed statement of work, and compensated based on achievement of milestones defined at the outset of the project. The statement of work also should be subject to a detailed project plan, with change management protocols incorporated to avoid “project creep” and performance outside budget.

Following this approach will not guarantee success, but will go a long way toward producing measurable results that are on time and in budget.

The Email Abyss — Most IT Managers View Email Archiving as an Important Initiative for 2008

In a recent study by Network World, technology managers, systems administrators and others ranked investment in anti-spyware, business continuity and disaster recovery systems as most critical for 2008.  Most of the respondents also ranked as critical or important the need to deploy or improve e-mail archiving capabilities for e-discovery purposes.  Remarkably, the study did not ask about information life-cycle management,  The report suggests, therefore, that legal, compliance and records management professionals, who are (or should be) focused on reducing the overall retention of information, are at odds with technology professionals, who apparently would just as soon archive email then deal with its final disposition.

For more see Network World.

A Crisis of Global Proportion: Slipshod Control Over Work-related Files of Employees

A recent survey conducted says that one out of two employees store work-related files in multiple locations.  Do you know any employee who stores all their work-related files in one place?  While common sense suggests this percentage is much higher, the point is that most organizations are losing the information management battle–if fighting it at all.  The proliferation of business email, estimated  at 97 billion a day in 2007, when combined with poor records and information management, is a bona fide global crisis.  It is not easy to achieve, but the organizations that dig in and start enforcing compliance with records management policy will realize material savings to the bottom line and quickly gain competitive advantage. 

For more on the referenced survey follow this link.

White House ordered to preserve all e-mail (then and now)

WASHINGTON (AP) — A federal judge Monday ordered the White House to preserve copies of all its e-mails, a move that Bush administration lawyers had argued strongly against.

A judge ordered the White House to keep copies of all e-mails.

U.S. District Judge Henry Kennedy directed the Executive Office of the President to safeguard the material in response to two lawsuits that seek to determine whether the White House has destroyed e-mails in violation of federal law.

In response, the White House said it has been taking steps to preserve copies of all e-mails and will continue to do so. The administration is seeking dismissal of the lawsuits brought by two private groups, Citizens for Responsibility and Ethics in Washington and the National Security Archive.

The organizations allege the disappearance of 5 million White House e-mails. The court order issued by Kennedy, an appointee of President Clinton, is directed at maintaining backup tapes which contain copies of White House e-mails.

The Federal Records Act details strict standards prohibiting the destruction of government documents including electronic messages, unless first approved by the archivist of the United States.

Justice Department lawyers had urged the courts to accept a proposed White House declaration promising to preserve all backup tapes.

“The judge decided that wasn’t enough,” said Anne Weismann, an attorney for CREW, which has gone to court over secrecy issues involving the Bush administration and has pursued ethical issues involving Republicans on Capitol Hill.

For more on this story see CNN.com.  For a copy of the court’s order, click here.

In fairness, as numerous earlier posts on The Datakos Blawg illustrate, the problem of litigation holds and electronically stored information is not unique to the W. Bush Administration.  This is news today, but just seven years or so ago the Clinton Administration fought similar battles.  See White House Denies Email Wrongs.    The themes are the same, but in 2000 we were operating in “thousands” of emails; today we are talking, literally, hundreds of millions.  Something has got to give!