Protecting Privilege — New Rule 502 mitigates the risk of inadvertent e-discovery disclosures

By Michael Kozubek

Published in the 2/1/2009 Issue of Inside Counsel.

Privilege review has been a major culprit in the skyrocketing cost of e-discovery. With hundreds of thousands of documents subject to discovery in numerous cases, attorney-client communications and work-product information frequently end up in the hands of the opposing party. Because the production of privileged documents during discovery waives the privilege, discovery teams scour through documents trying to ensure nothing slips through that could damage their case. Still, with the volume of electronically stored information, inadvertent disclosure is almost inevitable, with potentially devastating results.

“Cases have been lost in part because of inadvertent disclosures,” says Bobby Balachandran, CEO of Exterro, a legal hold and workflow software provider.

But that risk diminished when Rule 502 of the Federal Rules of Evidence (FRE 502), originally drafted by the Judicial Conference Committee on Rules of Practice and Procedure, recently became law. The new rule is designed to mitigate the expense of privilege review while protecting companies from potentially large liabilities arising from inadvertent disclosures of privileged communication.

The rule provides that privilege is not waived when privileged communications are inadvertently disclosed, provided the holder of the privilege took “reasonable steps” to prevent disclosure and to rectify the error.

Litigators celebrated the enactment of FRE 502 while warning that it is not a panacea and does not remove the need for sound e-discovery management practices.

“The new rule is welcome news for litigants,” says David Lender, a partner at Weil, Gotshal and Manges. “An inadvertent production will not result in the waiver of the privilege as long as reasonable steps are taken to preserve the privilege before production.”

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Tough Times for Corporate Legal Departments

Lexakos asked law department leaders again about their concerns, priorities and resource allocation plans for 2009. This year’s benchmarking survey covers reporting metrics, outsource planning for IP and litigation, budget pressures, e-discovery, privilege waiver management in relation to new Federal Evidence Rule 502, and other compliance priorities.

In 2007 and 2008, Compliance Week, the leading publication and information service on corporate governance, risk and compliance, chose Lexakos as a conduit for gathering and analyzing compliance needs across all industries

On February 3, 2009, Compliance Week featured the results from Lexakos’ most recent strategic planning survey, with over 230 corporations participating. In addition to highlighting Lexakos’ relevance in the compliance arena, this coverage gives Lexakos an exclusive perspective of hundreds of companies’ needs and practices.   Here is an excerpt:

The new study of corporate law departments confirms what most general counsels already know: 2009 is going to be a rough year.

Forty percent of legal departments expect a decrease in their overall operating budget for 2009, compared to only 8 percent last year. At the same time, however, litigation activity is rising—particularly for the financial sector, besieged by investors unhappy with the sub-prime mortgage meltdown and victims of the Bernard Madoff Ponzi scheme.

Wolf “Even though budgets are being tightened, litigation is going up,” says Rick Wolf, CEO of the consulting firm Lexakos, which conducted the survey. “What it suggests to me is that they’re being asked to do more with less.”

David Cohen, co-chair of the e-discovery analysis and technology group at the law firm K&L Gates, has observed similar trends. “Corporate law departments are facing two realities. The first reality is that litigation does not go away in troubling economic times, and the cost of that litigation tends to go up, not down, every year,” he says. “General counsel are left on the horns of a dilemma: how to cut litigation costs in the face of no decrease in litigation, and often increasing e-discovery demands.”

Those pressures should lead in-house legal departments to prune back the volume of work they leave to outside law firms by doing more work themselves. But law departments are now under their own pressure to cut back on staff. “The result of all of that, paradoxically, is that lawyers are stretched even more thinly than they have been in the past, making it difficult to bring more work in house,” Cohen says.

As a result, law departments are getting more creative in how they cut costs and managing themselves more efficiently, Wolf says. For example, only 32 percent of law departments last year used a centralized litigation group; that number jumped to 49 percent for 2009. And while only 20 percent of respondents last year said their legal departments had a strategic plan for the year, that number soared to 57 percent this year.

Compliance Week ran a similar feature article on the Lexakos 2008 Strategic Planning Survey titled “Records Management: A Governance Crisis?”

For a copy contact information@lexakos.com.

A Mark to Market Rule for Lawsuits?

The Financial Accounting Standards Board (FASB) has proposed a new standard for public disclosure of pending lawsuits. This raises interesting legal technology and management questions for general counsels.

Reporting Rights in the January 2009 issue of InsideCounsel reports on FASB Statements No. 5 and 141[R]. These now-delayed rules would lower

“the threshold for reporting the potential loss from a lawsuit from the current ‘probable’ to anything short of ‘remote.’ …. Currently, because many loss contingencies are reasonably possible rather than probable, companies usually deal with significant litigation by describing it and stating that an estimate of loss cannot be made. That’s a far cry from the detailed liturgy FASB’s original proposal mandated, a liturgy that critics say will not only fail to work as intended, but will prejudice companies in a variety of ways.”

It strikes me that you could view the proposed FASB standard as the moral equivalent of financial mark to market rules. Failure to mark financial assets to market contributed to the current economic crisis. If corporations now have to report more financial assets at market (rather than book) values, why not also the moral equivalent for lawsuits? I wish the article had analyzed whether the mark to market debate will affect the FASB rule-making.

For more see prismlegal.com.

E-Discovery Trends in 2009 — New developments in e-discovery will affect enterprise general counsel and compliance officers, law firms serving corporate clients, and IT departments

By Christine Taylor, January 9, 2008, 12:10 PM

A few years ago, the Taneja Group coined the term “Information Classification and Management” (ICM) to describe the technology of locating and classifying data throughout the enterprise. ICM covered sub-technology sectors such as e-discovery, compliance, data security control, and data management. However, we saw the term “e-discovery” trump the more comprehensive name as rabid attention turned from ICM to the specifics of civil litigation software tools. We are now seeing the e-discovery term itself take on a fuller usage, more akin to ICM. People do use the term when talking about civil litigation, but are also expanding it to encompass compliance, corporate governance, data classification, and even knowledge management.

In this broad sense we have looked at the trends of the e-discovery market as they impact its largest stakeholders: the enterprise general counsel and compliance officers, law firms serving corporate clients, and IT.

The crux of the matter is that e-discovery and its related areas will be extremely hot for litigation and compliance, especially those related to the financial meltdown. The market increasingly understands the necessity of e-discovery software tools and systems, and will move toward proactive e-discovery adoption. A more reactive approach will remain alive and well as many companies will still avoid implementation until driven to it by a lawsuit or federal investigation. But companies will increasingly understand that the e-discovery solution phenomenon is much more than a litigation aid. It also has major effects on federal compliance and internal governance, and potentially on data management throughout the enterprise.

For more see byteandswitch.com.

E-Discovery Requirements Are About to Hit Canadian Firms

As Canadian firms brace for new e-discovery rules, they can look to their U.S. counterparts for technology lessons.

By Anne Rawland Gabriel

Time is growing short for Canadian securities firms to prepare for the scheduled April enforcement of the new Canadian National Instrument 31-103 (NI 31-103), regulation that significantly expands record keeping requirements for electronic communications. Fortunately NI 31-103 substantively mirrors U.S. regulations already in place, which means Canadian firms have the opportunity to learn from others’ experiences.

“NI 31-103 is very similar to SEC and FINRA requirements in the U.S.,” substantiates Carolyn DiCenzo, a Gartner research VP. “It’s important to remember that the spirit of the law is communications and not just one particular type of communication, such as e-mail or instant messaging.”

For more see wallstreetandtech.com.

Obama Administration Could Mean More Compliance Regs

January 5, 2009
By Drew Robb

Just as accounting scandals earlier this decade led to new regulations like Sarbanes-Oxley, last year’s global financial meltdown coupled with Democratic control of the White House and Congress seems like a recipe for a host of new compliance regulations — and thus more business for storage vendors and more work for storage administrators.

But the changes won’t stop with an Obama presidency and the 111th Congress. The leaders of the Group of 20 industrial and emerging countries (G-20) have been meeting to consider global regulations aimed at raising bank capital standards and regulating hedge funds, with European leaders at the forefront of the new financial market regulation.  While it might be years before all this results in any kind of international consensus, another round of regulation is almost certainly at hand.

* * *

SOX and other regulations like FRCP stimulated interest in the archive and nearline disk market and exposed tape media’s shortcomings for meeting search and audit requests.

“Generally, additional regulation mandates that organizations have to demonstrate their ability to reproduce transactional records within a specified timeframe when requested,” said Brian Kelly, an executive at Ernst and Young Global Ltd. “After the failure of some major organizations to respond to such audit requests, an overhaul of the archival process was mandatory.”

For more see enterprisestorageforum.com.

Reviewing Your Email and Internet Usage Policies

Written by Sue Walsh on January 2, 2009

As the year comes to a close it’s good time to review your Email and Internet usage policies and insure that they are clear and comprehensive. The folks over at SmartBiz have published some helpful tips to assist you. Here’s an excerpt:

As the Internet and email have become a big part of our everyday lives, employers need to make clear the separation between work and non-work. What someone would consider appropriate with friends may be out of line in the workplace. Each practice needs to have a clear, written policy in place to eliminate confusion by the employees on what is and is not acceptable.

Such policies are critical in this day and age. It only takes one email or dubious website to cause your business a lot of trouble in the form of viruses, security or confidentiality breaches, even lawsuits. So keep your policy updated and easily available to all your employees!