United States: Perspective: The New e-discovery Burden

Almost a year ago the Federal Rules of Civil Procedure governing the discovery of electronic data were amended. While the changes were designed to reduce litigation costs, we've seen just the opposite.

The amendments broadened the definition of items subject to legal discovery, ranging from "documents" or "data compilations" to include all electronically stored information. Parties in a lawsuit can now demand from each other word processing documents, e-mails, voice mail and instant messages, blogs, backup tapes and database files.

Failure to comply with these sundry electronic production obligations can lead to serious sanctions, sometimes to the tune of millions of dollars.

In the aftermath of all the changes in the e-discovery landscape, let's take a closer look at how recent rulings are shaping the legal terrain.

Retention policies/litigation holds

It is not unusual for companies to purge hard copy and electronic information after the expiration of a predetermined time limit. (Deleted electronic information often can be recovered from backup tapes, but at a cost.)

A company will not ordinarily be sanctioned for deleting e-mails as part of what the law considers a "routine, good-faith operation." However, if a company becomes aware of potential or actual legal action, it must institute a litigation hold to preserve relevant information, notwithstanding pre-existing retention policies.

And the hold must not just be a policy to preserve relevant information--the policy must be followed in practice. Indeed, in the case of United Medical Supply v. United States (PDF), the responding party was required to come forward and establish that the litigation hold was effective in practice.

Can parties ever escape their electronic discovery obligations because they do not have adequate financial, manpower or technical resources to comply? Some courts are not sympathetic to such a plea. In Williams v. Taser International, the responding party was a relatively small company with about 245 employees. When faced with electronic discovery obligations, Taser hired and trained a technology employee to manage the discovery process. The judge said this was enough. He maintained that the company still had to make all reasonable efforts, including the retention of additional information technology professionals to get the job done.

Rather than streamline and limit litigation, electronic discovery causes yet another expensive track for legal disputes.

You often hear that electronic discovery materials are not reasonably accessible and would, therefore, not need to be produced. Unfortunately, that argument is not always accepted, especially where the probative value of the information outweighs the burden of production. For example, in Best Buy v. Developers Diversified Realty, the responding parties argued that e-mails and other electronic information were not reasonably accessible because the information would have to be retrieved from a back-up system. They contended that the cost of recovering the information would be in the six figures. The judge wasn't having any of it and ordered the information produced within a mere 28 days.

Disputes may arise over the proper format of electronic material the sides must produce. In Williams v. Sprint, the court ruled that electronic documents had to be produced in native format. This meant that metadata had to be intact, including features such as file owner, date of creation, senders, recipients, routing data and subject lines. In the more recent case of Columbia Pictures Industries v. Justin Bunnel, the court disagreed with the responding party. The judge ordered the production of information temporarily stored in random access memory--even though such information might only be stored for extremely short periods of time.

Responding parties have argued that costs of complying with electronic discovery demands should, under certain circumstances, be shifted to the propounding parties. This is more likely to be the case where the costs associated with electronic discovery are expected to be high and the probative value of the discovery sought is relatively low. More often than not, however, parties are required to pay for their own costs when producing electronic information. In PSEG Power New York v. Alberici Constructors (PDF), the responding party argued that it should not have to pay the heavy freight of producing a large volume of e-mails along with attachments. The court disagreed.

Getting it wrong when it comes to fulfilling electronic discovery obligations can have major repercussions in terms of the potential for sanctions. For example, in the case of Z4 Technologies v. Microsoft (PDF), when it came to light during trial that certain e-mail evidence had not been produced during discovery on a timely basis and that the existence of a database was not disclosed in a forthright manner, the judge ordered Microsoft to pay additional damages of $25 million, as well as practically $2 million in attorney's fees, for litigation misconduct. This is no small price tag, indeed.

Finally, what happens when a judge appears inclined to issue sanctions, and attorneys want to seek to justify their conduct? This is a complicated matter. On the one hand, attorney efforts geared toward electronic discovery can constitute confidential attorney work product and can involve privileged attorney-client communications. On the other hand, if it is the client that is stonewalling appropriate electronic discovery, the attorneys for that client want to be able to explain that they should not be sanctioned based on the approach taken by the client. To make that argument, the attorneys might have to circumvent the attorney work product doctrine and the attorney-client privilege.

This came up recently in the Qualcomm v. Broadcom (PDF) case. Attorneys sought to invoke the "self-defense" privilege exception to explain their electronic discovery role to the judge. While the judge ruled that the attorneys could come forward with respect to work product, they were not allowed to get around the attorney-client privilege. There likely will be further developments in this area.

This is just the beginning. The Federal Rules of Civil Procedure were amended less than one year ago. But as we've seen, rather than streamline and limit litigation, electronic discovery causes yet another expensive track for legal disputes.

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