Navigating Electronic Discovery Issues - ABA YLD 101 Practice Series

By David Moncure

Effective December 1, 2006, the Federal Rules of Civil Procedure ("Federal Rules") were amended in various ways that will in Federal litigation have a profound influence on records management and e-discovery. The Federal Rules apply to all cases in federal court, including bankruptcy cases. The overarching goal of the amendments is to tailor the Federal Rules to better apply to electronically stored information ("ESI"). The amendments are likely to have serious repercussions for unprepared litigants who find themselves facing new requirements applicable to initial disclosures, pre-trial conferences, preservation obligations, scheduling orders, inaccessible data sources (including backup tapes), forms of production, and sanctions, among others. This paper attempts to discuss how the Federal Rules will impact your bankruptcy practice.

Records Management Program
Sound records management principles can enable a potential litigant to produce all relevant information in an effective and efficient manner when and if sued. Rule 26(a)(1)(B) states that initial disclosures must include "a copy of, or a description by category and location of [all] electronically stored information." A records management program identifies types of records retained by a company in a records retention schedule. A records classification scheme is developed for the schedule, and records are classified in the schedule by category and type. The schedule contemplates regulatory requirements, business needs, and litigation holds when determining how long records should be retained. The development of sound records management planning can decrease the volume of ESI and help organize the information, making it easier to locate and less costly to produce. Defensible records management policies and procedures, as well as a reliable retention schedule, reduce the risk of spoliation claims and non-compliance with the Federal Rules. Records management programs should be implemented on an enterprise-wide level and should include continuous education of employees.

Duty of Disclosure
Rule 26(b)(2)(B) is added to provide protection against the obligation to search or produce ESI that is "not reasonably accessible because of undue burden or cost." Examples of inaccessible data include back-up tapes intended for disaster recovery, legacy data from obsolete systems that is unintelligible on successor systems, and deleted or fragmented data. However, the Advisory Committee Notes make it clear that if an inaccessible data source contains "potentially responsive" information, it must be disclosed. Parties responding to discovery requests or subpoenas must identify, "by category or type," the sources containing potentially responsive information that it is neither searching nor producing. The requesting party may be entitled to discovery by sampling the allegedly inaccessible data. The responding party has the burden to prove that data is inaccessible. Assuming the responding party meets its burden of proof, the requesting party then has the burden to show good cause for data production. The court then may choose to order that inaccessible information be produced if the requesting party can show good cause. Good cause considerations include: "(1) the specificity of the discovery request; (2) the quantity of information available from other and more easily accessed sources; (3) the failure to produce relevant information that seems likely to have existed but is no longer available on more easily accessed sources; (4) the likelihood of finding relevant, responsive information that cannot be obtained from other, more easily accessed sources; (5) predictions as to the importance and usefulness of the further information; (6) the importance of the issues at stake in the litigation; and (7) the parties' resources." Fed. R. Civ. P. 26 advisory committee's note.

For large data producers, this is perhaps the most revolutionary change to federal litigation in a generation. Bankruptcy counsel should know what ESI a company has and how it is stored, so that a claim can be justified that data is "not reasonably accessible." More importantly, bankruptcy counsel must become familiar with inaccessible data sources in order to properly disclose the sources should they contain "potentially responsive" data.

Prepare a company for Rule 26(b)(2)(B) obligations by disposing of certain ESI that is not subject to any retention obligations before litigation or an investigation may subject the data to a litigation hold. This may be of particular importance for companies that currently keep large quantities of obsolete backup tapes that are no longer needed for disaster recovery and are not subject to a legal hold or internal document retention requirement.

Privilege Issues
The sheer volume of ESI collected and produced in litigation has created concern among bankruptcy attorneys and their clients about the production of privileged information. The Federal Rules attempt to address privilege concerns by implementing a post-production procedure to assert privilege and work product protection. The Advisory Committee Notes to the Federal Rules specifically state that the committee intended to avoid substantive questions regarding the waiver or forfeiture of privilege or work product protection. The rule is procedural, not affecting substantive waiver laws.

The newly-added Rule 26(b)(5)(B) provides a "clawback" procedure for a party to assert a claim of privilege or protection as trial preparation material after production, and, if contested, to allow for court resolution. Once having received notice, in writing unless circumstances preclude it, of a claim of privilege or protection, the party receiving the privileged or protected information may not disseminate or use it until the claim is resolved, and must take reasonable steps to retrieve the information if it has been disclosed. The receiving party may promptly present the information to the Court under seal for a determination of the claim of privilege or work product. The producing party must preserve the information until resolution. Notably, the rule is not limited to production of ESI, nor instances of inadvertent production.

Rule 26(b)(5) must be read in tandem with both Rule 26(f) calling for parties to discuss privilege issues and come to an agreement on how those issues are to be addressed, and with Rule 16(b) allowing a court to include the parties' agreement in its scheduling order. The Court will make a final determination regarding waiver, and bankruptcy courts will look to the substantive law of the applicable jurisdiction for relevant standards.

The amended Rules contemplate that companies may produce large volumes of ESI without having reviewed it first. Even if reviewed for claims of privilege, the Notes contemplate that "blunders will occur," and privileged documents may be inadvertently disclosed. Consider putting in place a plan outlining the types of information the company wants to protect from disclosure. This plan should consider not only attorney-client communications and work product, but also ESI and other information that may be affected by privacy, trade secret, and other confidentiality issues. Even with a "clawback" agreement in place, such an agreement will not bind third parties. See Report of the Advisory Committee on Evidence Rules, Rule 502 (May 15, 2006).

Early Management of ESI for Pretrial Conferences and Scheduling Orders
New subsections 16(b)(5) and 16(b)(6) state that federal court scheduling orders may address both "disclosure or discovery of electronically stored information" and "any agreements the parties reach for asserting claims of privilege or of protection as trial-preparation material after production" of ESI. Companies will have a limited amount of time in which to identify and evaluate relevant ESI. Without an effective records management system in place, implementing litigation holds and properly planning for the pre-trial conference will be more costly and disruptive of normal work schedules and may carry a higher risk of spoliation of relevant information. To be prepared, company representatives need to understand the types of ESI within the company and where it resides. The company should also develop a plan to retrieve potentially relevant ESI and a plan for executing litigation holds.

Part of a company's early management of ESI includes the development of effective and defensible preservation notice and litigation hold policies and procedures. Preservation notice best practice guidelines should be developed for the creation, issuance, and distribution of preservation notices. Develop template preservation notices that can be deployed quickly when faced with a litigation emergency. The proliferation of ESI makes the quick deployment of preservation notices particularly important since ESI can be easily altered and destroyed. Further, employees need to be trained and educated about preservation notice and litigation hold programs. Educated users help the programs operate effectively and efficiently.

Meet and Confer and Litigation Readiness
Gone are the days of the "drive-by" meet and confer. Rule 26(f) encourages counsel to "meet and confer" on e-discovery issues and try to agree on as many aspects of the e-discovery process as possible. Among the topics that should be discussed are preservation, privilege, and form of production. In order to prepare for the newly enhanced meet and confer process, bankruptcy counsel should ensure the company is properly prepared for litigation. Legal, regulatory/compliance, and IT departments should coordinate litigation response efforts, and the company should collaborate with technology partners to ensure proper preservation and collection of ESI. Standardized data collection procedures should be developed that are defensible and consistent throughout all business units. A defensibility toolkit for litigation could include templates/forms such as affidavits, standard discovery objections and responses, and Rule 30(b)(6) witness outlines. Again, enterprise-wide education and training will help increase awareness among employees regarding the importance of proper management of ESI, which, in turn, should better prepare a company for litigation.

One specific issue Rule 26(f) contemplates counsel will discuss at the meet and confer is the "form or forms in which [ESI] should be produced." Rule 34(b) is amended to create a process for specifying and objecting to the form in which ESI is produced. A requesting party may specify the form or forms in which ESI is to be produced (e.g., paper, tiff, native). If no specific form is specified by the requesting party, or if the producing party objects, the producing party must produce the data in the form in which it is "ordinarily maintained" or "reasonably usable." If there is a dispute as to the form of ESI production, after a "meet and confer" between the parties under Rule 37 that does not result in a resolution, the court can issue an order pursuant to Rule 37 and is not limited to the form or forms originally specified by either party.

A company should consider developing a preliminary plan for the most reasonably efficient format for compliance with Rule 34, that is, production in a "reasonably usable" form. This amendment also brings into focus the imperative to understand and analyze the company's use of metadata, as metadata may be (and usually is) transferred electronically as part of documents. Gone are the days when a company responding to a discovery request or subpoena could produce responsive ESI in paper form, thus eliminating associated metadata. A defensible, realistic, and cost effective approach to production format is production of Bates-numbered images, along with associated text files and selected fields of relevant metadata.

Sanctions and Safe Harbor
New subsection 37(f) states, "Absent exceptional circumstances, a court may not impose sanctions under these rules on a party for failing to provide electronically stored information lost as a result of routine, good-faith operation of an electronic information system." The Advisory Committee Notes make it clear that the purpose of this addition to the Federal Rules is to prevent sanctions for routine alteration or deletion of work that is unrelated to litigation and part of ordinary use. However, this is not free license to destroy data, particularly if litigation is anticipated or has commenced. In fact, a good faith obligation may include promptly disabling the automatic deletion features of the company's computer systems when litigation or an investigation is reasonably anticipated. The scope and application of the Safe Harbor rule may be a frequently litigated area, as case law should develop in the near future.


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About the Author

David is an associate with Fulbright & Jaworski, L.L.P. in Houston, Texas, and practices in the E-Discovery and Information Management section.

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