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Business Valuation, Accounting, and Litigation Support

Electronic Discovery

Electronic Discovery

Changes to Federal and State Court Rules on Electronic Discovery

On December 1, 2006, sweeping changes to the Federal Rules of Civil Procedure, governing the discovery of electronically stored information, or "e-discovery," are scheduled to take effect. In response, many state courts have amended, or are in the process of amending, their procedural rules regarding e-discovery. This means that every federal court case and many state court cases will require attorneys to advise their adversaries of the details of their clients' electronic data and document management systems and, in many instances, to produce electronically stored information, including company e-mails.

Furthermore, the new Federal Rule amendments require that attorneys understand their clients' electronic data retention policies as early in the litigation as possible, regardless of the nature of the claims, the amounts in controversy (assuming the jurisdictional minimum case value has been met in federal court cases), or the nature of the clients' business. A company should be prepared to provide its legal counsel with specific information regarding the company's document retention policy, the forms in which electronically stored information is maintained, the company's use of backup tapes, and when and how backup tapes are overwritten or removed from circulation. To the extent possible, an information technology (IT) specialist should be assigned to educate the company's attorneys about the company's system of electronic document management and to assist the attorneys in determining the best way to produce e-discovery while minimizing the cost to and impact on the company.

Companies may want to identify the appropriate IT personnel to address e-discovery issues before the rule changes take effect. This person should gather and make available the general information the company's attorneys will be expected to provide at initial court conferences. Such information includes:


  • Electronic document retention policy
  • Litigation hold policy
  • Descriptions, by category and location, of electronically stored information, including what types of equipment may hold electronically stored information, i.e. BlackBerries, laptops, networks, home personal computers, PDAs, cell phones, etc.
  • The most efficient, safe and secure methods for the company to preserve and produce electronically stored information
  • Potentially privileged information
  • Categories of electronically stored information that may no longer be accessible

A company facing a large volume of litigation may wish to consider retaining one law firm to coordinate its electronic discovery so that its attorneys can appreciate the nuances of the company's electronic data retention system and aid the individual trial counsel in this regard.

Document accessibility can be affected by a number of factors, including a company's retention policy, routine overwriting of backup tapes, and lost, stolen or discarded equipment. Absent exceptional circumstances, sanctions may not be imposed for a company's failure to provide electronically stored information lost as a result of the company's good faith operation of its electronic information system. Armed with information regarding inaccessible information, counsel will be better prepared to inform the court as to what information is no longer available, and thereby avoid wasting time and effort seeking unrecoverable data. Counsel may want to assist the company in determining which key employees have relevant information and in crafting narrow search terms geared toward the specific legal issues involved.

Know Where Your Electronic Data Is Before a Lawsuit Begins

The proposed rule changes are designed to raise awareness of the need to address the handling of potentially cumbersome and costly e-discovery issues early in litigation. The amendments to Rules 16 and 26 suggest that the parties confer about e-discovery and that it be specifically addressed in the court's scheduling order. Therefore, a basic familiarity with your company's or client's data storage schemes can speed up development of a workable discovery plan in the event of a lawsuit. How many servers are used? What data, in general, resides on each server? How accessible is that data? Does a search function exist, or could one be easily designed to retrieve relevant data? Accessibility of data is a key concern, because under amended Rule 26(b)(2)(B), a party need not provide electronic data from sources that it identifies as "not reasonably accessible because of undue burden or cost." However, note that a lack of accessibility does not relieve a party of its obligation to preserve the electronic information.

Do not forget electronic information that might be stored in a location other than a main server. For example, individual employees may maintain some relevant data such as, e-mails or electronic notebooks on their computer hard drives or on locally stored CD-ROMs.

Also, be aware of backups and "legacy data." Backups are usually made on a regular basis to guard against data loss due to disasters such as fire, flood, or system malfunction. However, backups may not be organized to allow easy retrieval of individual documents. Legacy data is that which is stored using obsolete media formats, or dependent upon an obsolete computer language. Backups and legacy data may fall into the "not reasonably accessible" category, but must still be preserved and may require a showing of lack of accessibility.

Have an Enforceable Good-Faith Process for Document Retention in the Event of a Litigation Hold

The e-discovery rules apply not only to data stored before a lawsuit, but also to data generated and managed on an ongoing basis while the suit is pending. Under amended Rule 37(f), a party ordinarily will not be sanctioned for failure to provide electronic information that is "lost as a result of the routine, good-faith operation of an electronic information system." This rule is designed to recognize that routine computer operations require some data to be purged, overwritten, or otherwise altered on a regular basis. For example, deleted e-mails may need to be purged regularly to avoid clogging and slowing the e-mail system. Even the simplest actions such as opening an electronic document or turning off a computer can potentially alter information.

In order to avoid sanctions and show good faith, first know when the preservation obligation arises. This obligation, or "litigation hold," may be governed by the law of the specific jurisdiction or by a court order. Then, implement reasonable procedures to preserve potentially relevant data on an ongoing basis. For example, can features of the computer system be modified or temporarily disabled to avoid altering or deleting relevant information? Finally, make sure that all employees who might have access to relevant data, including those who might maintain such data on their personal computers or other localized storage, are aware of their preservation obligations and that the retention policy is enforced.

Agree Upon Production Formats at the Start of e-Discovery

Amended Rule 34(b) provides that a request for production may specify the form in which electronically stored information is to be produced. Furthermore, unless the parties agree or a court otherwise orders, a party need not produce electronically stored information in more than one form.

The form is important because an electronic document in its native form may contain "metadata," which is stripped away when the document is printed in hardcopy form, converted to an easy-to-manage image format such as PDF or TIFF, or perhaps even copied to a dedicated server for quick access. Metadata is coding that is generally not visible to the user, but contains information tracking changes and showing who has accessed the document. Thus, loss of metadata might be viewed as spoliation by a party seeking information contained in the metadata. By the same token, a party may be willing to produce the visible contents of an electronic document, but object to producing its metadata on grounds of privilege or irrelevance.

The parties should discuss and agree upon the format in which electronic information will be provided, with the consent of the judge. Regardless of the form in which electronic information is produced, the producing party should preserve the information in its native form, in case an issue arises later in discovery.

With a little advance preparation, you will be ready to conquer the brave new world of e-discovery, and make the best decisions to reduce the burdens and costs for your company or client.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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