Wisconsin
Lawyer
Vol. 79, No. 12, December
2006
Electronic Discovery and the Amended Federal Rules of Civil
Procedure
The federal courts have stepped forward to fill
the gaps in procedural rules that have developed due
to the increased use of and reliance on computer
technology. On Dec. 1, 2006, several amendments to the
Federal Rules of Civil Procedure took effect, making
electronic information explicitly subject to discovery
and providing mechanisms to address unique
difficulties posed by electronic discovery.
The federal rules will influence other jurisdictions as they grapple
with the same electronic discovery
issues; Wisconsin lawyers should begin now to master
the skills the new rules require.
by Robert L. Gegios and Stephen D.R.
Taylor
he use of computer applications for all manner of business functions
has exploded over the last 15 years. Some
commentators estimate that more than 90 percent of information now is
created
electronically.1 As much as 70 percent
of electronic information may never reach hard
copy.2 Businesses and individuals now
commonly rely on
computer technology to conduct their affairs; thus, if a business
becomes involved in litigation, important evidence may exist
only in electronic form.
As Wisconsin Supreme Court Chief Justice Shirley Abrahamson recently
observed: "Discovery, preservation,
and production of electronic data is one of the leading legal issues
facing not only corporate America but also
government."3 Courts, lawyers, and
commentators increasingly have expressed concern over the peculiar
complexities and
costs involved in discovery of electronic information. In particular,
many believe that the general procedural rules have
not kept pace with the dramatic progression of technology.
The federal courts now have taken a large step forward in an effort
to fill that gap. On Dec. 1, 2006, several
amendments to the Federal Rules of Civil Procedure took effect, the
culmination of six years of work to address the
difficulties faced by the federal courts in applying rules devised for
paper production to the burgeoning use of electronic
information. (In this article, all references to "Rule" or
"Rules" are to the Federal Rules of Civil Procedure.)
Rule 34 and Rule 26(a)(1) are revised, making electronic information
explicitly subject to
discovery.4 Rule 33(d) now expressly
includes electronically stored information within the scope of
"business information" that potentially must
be produced in response to an interrogatory. However, electronic
disclosure will not suffice as a response if the
recipient's ability to locate relevant material is impaired. Rule 45
adapts the permitted subject matter of subpoenas to reflect
the amendments.
Robert L. Gegios, U.W. 1981, is a
shareholder in Kohner,
Mann & Kailas, S.C., Milwaukee. He concentrates his practice
in business and commercial litigation and counseling in national and
international settings. He is the president-elect of
the Eastern District of Wisconsin Bar Association.
Stephen D.R. Taylor
is a law
clerk with the firm and a third-year student at Marquette Law School. He
previously provided strategic business and financial advice,
primarily to European software companies. He recently completed
an externship with the Hon. John L. Coffey of the U.S. Court of
Appeals for the Seventh Circuit.
In addition to modernizing textual references, the amendments also
provide mechanisms specifically designed
to address the unique difficulties posed by electronic discovery,
including the costs and delays often associated
with production of electronic information.
The Amendments to the
Federal Rules
1) Focus on Electronic Discovery Issues at the Earliest
Stages: Rules 16 and 26. To focus attention on electronic
sources of information, Rule 26(a)(1) now includes a new category of
discoverable material: "electronically stored
information."5 Rule 26(f) requires
parties to discuss "any issues relating to preserving discoverable
information" at the mandatory conference
of counsel held before the Rule 16 initial court scheduling
conference.6 The advisory committee
believed that early discussion of
this topic was essential because routine computer operations regularly
change or delete
information.7
Rule 26(f) also calls on the parties to address information sources
and the issue of inaccessible data, and the burden and cost
of obtaining information from particular sources of potentially
discoverable
material.8 The parties also are explicitly
directed to
discuss the form discovery will take.9 The
discovering party may request the format in which it wishes to receive
the information.
Absent such a designation, the party from which the information is
sought may give notice of the format(s) it intends to
use. 10 Failure to specify format at this
stage exposes parties to the risk of having to reproduce the information
in more than one format.
Rule 16(b) now provides for pretrial scheduling orders to include
provisions for electronic discovery, and the process by
which such discovery will occur.
2) Handling Requests for Electronic Information and Claims
of "Inaccessibility": Rules
26(b)(2)(B), 34(a), and 34(b). Rule 26(b)(2)(B) enshrines a
two-tiered methodology for addressing requests for electronic
information
under Rule 34. A party responding to a discovery request must first
identify information available from accessible sources and
determine whether this information will satisfy the discovery request.
If satisfaction is uncertain, the responding party must determine
whether any of the harder-to-access sources need to be searched. The
responding party is, however, required in its response to identify
the nature and content of any source it claims is inaccessible.
Requesting parties may seek, for good cause, a court order to
compel discovery from inaccessible sources. Because it may be
difficult to show that good cause exists, Rule 34(a)(1) allows
requesting parties to seek an opportunity to test or sample
inaccessible sources. Courts also may order sampling sua sponte.
Sampling
requests are subject to a balancing test for burdensomeness under Rule
26(b)(2)(B) and (b)(2)(C).
When a requesting party seeks electronic information that is not
accessible to the responding party, the costs of retrieving
and reviewing such electronic information may be shifted to the
requesting party. Because of this cost-shifting potential, the
responding party must identify sources and their contents sufficiently
clearly to enable the requesting party to estimate the costs of recovery
and the probability of finding pertinent information.
The requesting party has a right to specify the format electronic
discovery is to
take.11 Attorneys should develop
familiarity
with different formats of electronic data so they can make a careful
and informed decision about which format best fits a
particular discovery scenario. The expected volume of information, the
nature of the sources of the information, and the technology
resources available to the requesting party, are likely to vary with
each case and client. Generally, a decision will have to be made whether
to seek discovery in native format, "paper-like" format, a
conversion format, or a mix thereof. When an appropriate format is
identified, it probably is best practice to specify the form by its
extension.12
Discovery requests may not be duplicative, unless the requesting
party is willing to pay for duplication, but requests
may stipulate a different format for different types of information
within a request. The requesting party should always consider
the searchability of each type of information requested, and how to
demonstrate the continuing integrity of the information disclosed
to it. The correct choices may significantly enhance the value of
discovery, while reducing the costs incurred by the client.
If the requesting party does not exercise its right to specify the
form of discovery, or the requested format is
successfully challenged as being unduly burdensome, Rule 34(b)
provides a default rule. Discovery must be offered either in a form in
which
the responding party maintains the information in the ordinary course
of business, or in a "form or forms that are reasonably
useable."13 Thus the responding
party can select a format that it does not use in the normal course of
business, if this format is serviceable
for discovery purposes, but if the formats it uses are not generally
used in commerce, the respondent is likely to bear the burden
of translating the discovery information into a reasonably useable
format.14
"Reasonably useable" is a variable standard. Although a
responding party must meet the "generally useable in
commerce" standard, a respondent is not required to produce
information in a format that exceeds the utility of the formats in which
the information is ordinarily kept. Similarly, responding parties need
not convert electronic information simply because the
requesting party operates unique systems. What a respondent may
not do is produce discovery information in a format that makes
it
more difficult for the recipient to use the material in litigation -
for example, by reducing searchability or removing
metadata.15 The benchmark seems to be
whether the respondent has removed from the electronic information a
useful attribute that it
possesses.16
Under amended Rule 34(b), a responding party may object to a
requested format for production, providing its reasons
and stating the format it intends to use. The requesting party then
has the burden to seek an order under Rule 37(a) to require
a particular format for the electronic information
provided.17
3) Procedure for Post-Production Assertion
of Claims of Privilege and Work Product: Rules
26(b)(5), 26(f)(4), and 16(b), and Proposed Rule of Evidence 502.
Rule 26(f)(4) is a new provision addressing the
committee's concern that "reviewing electronically stored
information for privilege and work product protection adds to the
expense and
delay, and risk of waiver, because of the added volume, the dynamic
nature of the information, and the complexities of locating
potentially privileged
information."18 Metadata and deleted
materials, not generally visible on-screen, were given as examples of
areas in
which problems may be faced.19 In an
effort to reduce the cost and delay of prior screening, the rules now
enable parties to agree
that claims of privilege may be asserted after electronic
information is produced.
The amended rules provide a framework for, and encourage, parties to
agree voluntarily to measures that will allow disclosure
of electronically-stored information but will maintain the privileged
nature of the information. Usually, disclosure results in waiver
of privilege. Under the default approach established by Rule 26(b)(5),
if any privileged information is disclosed in response to
a discovery request, the responding party may notify recipients, who
must then promptly return, destroy, or sequester the
information.20 If the recipient disputes
the claim of privilege, the information subject to the claim may be
deposited under seal with
the court so that the claim can be
determined.21
Parties have some latitude in formulating agreements; they may opt
to delay review for privilege until after discovery
without waiving privilege. This has the advantage of minimizing delay
before initial
disclosure.22 "[O]ther arrangements
are possible
as well."23 If the parties have
agreed on a basis for post-production assertion of privilege, the agreed
basis may now be included in
a Rule 16(b)(6) order.24 Parties should
use Form 35 to record the nature of such an
agreement.25
The suspension of waiver issue is as much controlled by the rules of
evidence as by the rules of procedure.
Accordingly, the Judicial Conference Committee on the
Federal Rules of Evidence also has reviewed the issue of attorney/client
privilege and
the work product doctrine in relation to
discovery.26 Under proposed Rule of
Evidence 502, inadvertent production of
protected material will not constitute waiver if the disclosure was
"made in connection with federal litigation or federal
administrative proceedings - and if the holder of the privilege or
work product protection took reasonable precautions to prevent
disclosure
and reasonably prompt measures" to rectify the error on becoming
aware of the
disclosure.27 An agreement concerning the
effect
of disclosure on privilege or work product protection will be binding
on the parties to that agreement, and on other parties if it
is reflected in a court order. Amended Rule 26 provides for this type
of agreement, and amended Rule
16(b)(6) provides for such an agreement to be reflected in
a court order.
Proposed Rule of Evidence 502 is intended to provide a
"predictable, uniform set of standards under which parties can
determine the consequences of a disclosure" of protected
materials during the pre-trial conference
phase.28 Thus, the rule is designed to
support a key goal of the civil procedure amendments: to reduce the
early cost of, and significant delay to, discovery arising from
the need to screen electronic information.
Although the civil procedure amendments took effect on Dec. 1,
proposed Rule 502 is unlikely to be finalized
immediately. Further, the federal courts cannot create a rule of
evidence that is binding on state
courts,29 raising the possibility that a
state
court could refuse to abide by a federal ruling that was pre-served,
and hence find privilege to have been waived, and thereby
undermine the objective of providing a predictable, uniform
rule.30 It is therefore likely that the
amendment to Rule 502 will require
direct statutory enactment by Congress before a party can be certain
that an agreement to bar waiver in one proceeding will not be
held invalid in another proceeding.31
4) Sanctions in Electronic Discovery Disputes: Rule 37(f).
Rule 37(f) provides some degree of protection
against the imposition of sanctions for the inability to produce
electronically-stored information when such data is lost as a result of
a
good faith, routine operation of an electronic information system. As
illustrations of routine operations, the Rules Committee
cited routine renewal of disaster recovery ancestor files, programs
that update metadata as the file is used, and the automatic
overwriting of deleted files.32 This rule
does not create a safe haven for intentional destroyers of
information.33
A suspension of routine operations to preserve evidence often is
termed a "litigation hold." Rule 37(f) does not speak
explicitly to the duty to preserve or to the scope of a litigation
hold, but notes that actions to implement such holds do suggest good
faith. The parties may agree on litigation
holds during pre-trial discussions on data
preservation mandated by the amended Rule
26(f). Failure to implement a hold once a party is on notice of the
information's pertinence to the case might be considered evidence
of bad faith.34
If a loss of data occurs in good faith, the revised rule permits
sanctions only
"in exceptional
circumstances."35 The party
seeking sanctions must show that, good faith or not, the loss is
"highly prejudicial to
it."36 Even then, sanctions should
be only the
minimum required to remedy the prejudice: the object of sanctions is
to provide a remedy and not to punish or
deter.37 Severe sanctions generally are
restricted to situations in which bad faith or reckless behavior is
found in the loss or destruction of electronic
information.38 Negligence generally is
not
sufficient.39
The scope of the safe harbor is limited to any loss of information
resulting from routine operations that occurs before good
faith efforts to impose a litigation hold can yield results. The safe
harbor limitation raises two issues: What triggers the duty to impose
a litigation hold, and what is the proper scope of a given hold?
Unfortunately, the amendments do little to clarify these issues. It
is clear that even pre-litigation events can trigger the duty to
preserve.40 In effect, the common law
position seems to be that the
duty is triggered at the point at which a reasonable person would
reasonably contemplate the likelihood of litigation. There also
is significant danger that a party's inability to show adequate prior
preparation and planning, including documenting systems,
storage policies, media, and procedures, to prevent a loss of
electronic data increasingly will provide fertile grounds for assertions
of
bad faith.
Implications for Internal and
External Lawyers
The amendments add to the growing number of new duties imposed on
attorneys by recent case law addressing electronic
discovery procedures. These duties require a knowledge of information
technology and its application that has not previously been
recognized as part of the general legal
skill-set.41
Electronic discovery has become pervasive. Discovery of email
"now occurs in nearly 100% of federal civil … cases and
major employment disputes."42
Discovery often is tremendously expensive: "The cost of responding
to a discovery request can be in
the millions of dollars."43
Electronic discovery needs have spawned an industry of specialists who
work with law firms and their clients
to manage their discovery obligations. It is estimated that this
infant industry earned revenues of $1.2 billion in
2005.44 According to a November 2005
survey, only 14 percent of in-house legal department lawyers believed
they had the tools and processes available
to handle an electronic discovery request.45
Despite the specialized, technical nature of electronic information
and discovery, failure to preserve electronic
information relevant to litigation may result in harsh sanctions for
lawyers and clients, including financial penalties, exclusion of
witnesses
or pleadings, adverse inference instructions, dismissal, and default
judgment.46 Sanctions have been sought in
many federal and
state cases; around 65 percent of these requests have been granted,
with sanctions granted against defendants 80 percent of the time,
and most often for nonproduction, although false claims of
nonexistence of electronic
information also figure significantly.47
Duties to preserve electronic information are
on-going.48 After imposing a litigation
hold, lawyers often are expected
to oversee their clients' compliance with the hold by taking
affirmative actions, for example, making certain that all sources
of potentially relevant information are identified and included in the
hold.49 To oversee compliance, lawyers
must become
familiar with their clients' document retention policies, speak with
information technology personnel, and communicate with the
"key players" in the
litigation.50 Lawyers may be required to
demonstrate not only that compliance was properly conceived, but
that counsel took steps such as conducting random audits to ensure
compliance by key
players.51
In addition to ensuring that information is preserved, lawyers
increasingly are expected to know how to identify
information subject to a litigation hold, preserve it, and search it
for privilege without in any way altering it. Simply collating records
may
not suffice: forensic review of duplicated sources now may become the
standard expected, because forensic review leaves intact, in
the form of metadata, desirable information that collation may
destroy. A lawyer who opens a file to review it for discovery or who
cuts and pastes information potentially destroys metadata. Such
seemingly benign actions - often conducted in an attempt to
comply with discovery - may overwrite or erase file paths and amend
data and thereby invite allegations of
spoliation.52
The interaction of routine operations and good faith protection
arguably has created a duty on the part of corporate counsel
to address retention policies. A lawyer who fails to advise a client
or employer of the risks of retaining data longer than commercial
or statutory necessity requires may have placed his or her client in a
more difficult position in regard to discovery requests.
However, when litigation is reasonably anticipated, advice to
implement a destruction policy, if acted upon, risks malpractice for
lawyers
and spoliation sanctions against the client.53
Once litigation is anticipated, trial lawyers have a duty to assist
in determining the scope of data preservation and then to play
an active role in ensuring competent, diligent, and ethical compliance
with discovery obligations by the client and its
employees.54 Trial lawyers are obligated
to communicate with in-house counsel to identify key players, and they
retain a duty to review
documents received from the client for indications that other, as yet
undiscovered, documents may
exist.55 Lawyers who fail to gain an
understanding of the nature and content of electronic information held
by a client, and to advise that client of the legal significance
of data retention and the appropriate characteristics of a routine
disposal policy, may risk
malpractice.56
The level of understanding expected of lawyers regarding electronic
issues will only increase under the federal rule
amendments. Parties now must come to pre-trial conferences able to
discuss what electronic information they possess, the steps taken
to preserve information, and the practicalities of accessing
it.57 Requesting parties need to
articulate their objectives clearly.
Courts may deny broad or vague discovery requests that do not
facilitate identification of potentially relevant electronic
information.58 Lawyers must understand
and should identify the format in which they want to receive electronic
discovery. Failure to do so
may leave the choice to the responding
party.59 Duplicative requests may lead to
cost-shifting in favor of the producing
party.60
Managing all these duties effectively will be greatly enhanced by an
electronic discovery plan that is developed and updated
by lawyers, in active collaboration with their clients. Lawyers should
offer training for in-house attorneys, information
technology leaders, and senior managers on the legal duties and
obligations relating to electronic
information,61 before developing a plan
that encompasses, among other things:
- identifying data sources in use (including PDAs, laptop
computers, home offices, thumb drives, mobile phones, and any
other electronic device capable of retaining information);
- determining the operating systems, applications, and databases
the
company uses and has previously used, dates of use,
and access to discontinued software;
- reviewing and amending records management policies. Aside from
regulatory and existing litigation requirements, the
plan should identify the operational life of different types of
information. Consider preventing employees from using personal
storage media. Many applications can automatically delete files that
are unused for a certain period. For applications that cannot,
consider implementing a policy whereby only the file originator may
retain a file past its initial use.
- identifying key individuals (players), both at the corporate
level and by operational area, and determining where
these individuals store data;
- documenting the company's file-naming and save-location
procedures;
- creating an inventory of back-up archives and their location,
and identifying the individuals
responsible for archiving and storage;
- determining for each type of data repository, including archives,
what issues would be posed if recovery is required;
- compiling a database of employees, former employees, and
consultants who have access to and privileges within
systems, including any external contactors that handle data, and the
time periods each person has access to the system;
- researching the suitability of outsourcing to an electronic
discovery consultant, and if outsourcing is suitable,
investigating which providers have expertise in the types of
information technology that the client employs, and the character of
litigation
likely to arise.
- designating specific individuals responsible for maintaining
information of the types noted in the bullets
above and for coordinating the implementation of
litigation holds with external counsel and with any external
consultants; 62
- detailing procedures for notifying responsible individuals,
including external counsel, once a duty to preserve is suspected
to arise, and specifying procedures for rapid, good faith
implementation of an appropriate litigation hold;
- agreeing on methods, such as an audit, by which external counsel
can verify enforcement of litigation holds; and
- designing training for supervisory staff and other people who have
access to critical electronic data concerning what to
do when notified of a litigation hold that affects them.
The need to act is pressing: "those companies that have not
already begun evaluating the rule changes in conjunction with
their IT departments may find themselves in a difficult position in
2007."63 The steps outlined above
should enable a realistic
early assessment of the costs and chronology of electronic discovery
production, thereby facilitating a more informed and rapid
response and helping lawyers and clients to navigate the
ever-increasing challenges posed by electronic discovery.
Conclusion
The federal amendments on electronic discovery provide compelling
confirmation that lawyers must adapt their practices
and develop new skills. Federal courts began to treat the amendments
as persuasive even before their text was
finalized.64 It is highly likely that the
new federal standards will strongly influence state jurisdictions as
states grapple with the same issues and
determine the duties of lawyers faced with electronic discovery
concerns. Accordingly, Wisconsin practitioners should move quickly to
master their new obligations and duties in this fast-changing
environment.
Endnotes
Wisconsin
Lawyer
