United States: Perspective: The Risk Of Ignoring E-Discovery Obligations

The failure to produce required electronic discovery can have serious consequences. This was borne out by a $1.25 million sanction just issued by a New York federal judge against two law firms and the insurer they represented.

The decision related to electronic information that was deleted and to hard-copy material that was not produced in liability insurance coverage cases connected to the terrorist attacks of September 11.

But according to a recent survey, this may not be an isolated event. It appears that many companies are not in a position to comply with electronic discovery amendments to the Federal Rules of Civil Procedure (FRCP) that went into effect late last year. As a refresher, let me identify a few key points.

Under amendments to FRCP 16(b), parties must get ready for a scheduling conference to consider electronic-discovery plans within 120 days of the start of a lawsuit. Moreover, at least 21 days before this scheduling conference, parties must meet and confer to discuss and try to agree upon electronic-discovery procedures for the case, pursuant to FRCP 26(f). Accordingly, parties must be formulating their electronic-discovery plans within the first 100 days of the life of a case.

Oftentimes, the most critical evidence is found in electronic communications.

Even though the purpose of these new rules is to provide early structure, uniformity and predictability, the truth is that right from the start of a lawsuit, a party must start evaluating with its IT team and its outside counsel where it stands, in terms of its own electronic data. Data can be located live on the network, on various servers, in hard drives, in shared drives, on laptops and personal digital assistants, as well as on backup tapes.

It should come as no surprise that electronic discovery is expensive. There have been many earlier times that cases have been resolved before the parties and counsel immersed themselves in the burdens and expense of electronic-discovery search, retrieval and production processes. By forcing these processes early at the outset, parties in federal cases really have no choice but to move forward with electronic discovery at the start of a case.

Of particular importance is Rule 26(a), which broadens the definition of electronic items that may be subject to discovery from "documents" or "data compilations" to include all electronically stored information. Therefore, while previously, parties might have been able to try to shield certain types of electronic information from discovery, the other side now can conceivably demand everything from standard Word documents and e-mails to voice mail messages, instant messages, blogs, backup tapes, and database files.

Nevertheless, parties still can argue that the burden of any particular demand outweighs the potential probative value of the electronic information sought. Whether a judge will agree with that argument is another matter.

LiveOffice, a provider of on-demand messaging security, archiving and compliance solutions, has just released findings from a survey that show that many companies are not prepared to comply with the foregoing FRCP amendments.

Indeed, of the 400 IT managers and consumers polled on a nationwide basis, while 63 percent already have been required to produce e-mail as part of litigation, 53 percent admit that they are not in a position to meet all of the requirements of the FRCP amendments, and 52 percent do not have an "e-discovery" plan that has been prepared by legal counsel.

This is troublesome. Indeed, 28.9 percent of the respondents were not even aware of their FRCP obligations.

Incredibly, nearly a third of respondents would not be able to produce an e-mail that is a year old, if required. This might result from the fact that approximately 25 percent of companies purge their e-mails manually or automatically after 90 or fewer days. While it is not against the law to have record retention/destruction practices under certain circumstances, data cannot be destroyed once a company is on notice that the data relates to issues relevant to potential or actual litigation.

It is no wonder, then, that IT managers cringe when it comes to e-discovery requests. Many respondents find that dealing with the Internal Revenue Service is the only activity more unpleasant than dealing with e-discovery demands, and more than half would rather have a cavity filled by a dentist than deal with an e-discovery request. I kid you not.

Companies need to recognize the imperative of meeting their e-discovery obligations, especially given the scope of related responsibilities.

According to the survey, an average employee will send and receive more than 135 e-mails daily. Thus, a midsize company with 500 employees will generate 17.5 million e-mails per year. (Moreover, the average employee spends 2.5 hours weekly managing his e-mail box, meaning that a midsize company with 500 employees potentially loses 65,000 hours of productivity annually.) Naturally, the magnitude of the e-discovery task is far greater for much larger companies.

Oftentimes, the most critical evidence is found in electronic communications, as people tend to be less formal and more spontaneous when responding quickly via e-mails and the like. Failure to understand how to preserve electronic evidence is not a legal defense, obviously.

If you are a company that fails to keep its electronic data house in order when it comes to e-discovery demands, now (frankly, yesterday) is the time to work with counsel skilled in this area and also to consider technological data management solutions.

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