October 23, 2012

The New Federal Rules of Civil Procedure: An ESI Primer

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By Sharon Nelson and John Simek

Some lawyers are terrified. Most are simply worried. A few blissfully assume they can continue on in splendid ignorance. You may not need to shake in your boots, but if you practice in federal courts, you need to get up to speed on the FRCP revisions, which are effective as of December 1.

Why are otherwise stalwart litigators quaking at the new FRCP amendments relating to electronic discovery? For the most part, it's because of recent court-imposed sanctions. The e-discovery debacle in Coleman Holdings v. Morgan Stanley Co., all by itself, caused a ripple of dread throughout the litigation realm. But Morgan Stanley hardly stands alone. A raft of cases now exist that all bear the same message to attorneys: Comply with e-discovery required practices or pay the piper.

Sanctions have varied—and most fines have been assessed against clients rather than lawyers. But judges have indicated that may change if the lawyers don't start toeing the line. Increasingly, judges have liberally handed out "adverse inference" instructions in cases of spoliation or "evidence gone missing," instructing juries that they may assume the absent evidence was negative. All of these penalties have been imposed without the benefit of having the new FRCP to back them up. Now that the duties are laid out clearly, you have to ask yourself: What will it cost my client—or my firm—if I don't abide by them? Are malpractice claims a possibility for those who ignore the new rules? You betcha.

So what do you need to know? Mind you, nothing in the new rules is rocket science. But the first and foremost thing to get through your brain is that electronic evidence is now center stage. You must address it—and early on. You may not like it, but you're going to have to deal with it.

To properly deal with it, you need to read both the new amendments and the extensive commentary to them. But to jump-start you, here's a fast and dirty crib sheet on key points.

What's in a Name? Everything

Precise wording now counts. What for years has been referred to as electronic data henceforth has the official moniker of "electronically stored information," or ESI. Get that right, and you're already ahead of the crowd. Do you also remember how we all scrambled to insert in our pleadings a new, absurdly long definition of "document" that would include every imaginable kind of electronic information? No worries, mate. From here on, ESI refers to all things electronic, whether or not you specify the nature of the information or the media.

The new rules are broadly written and the definition of ESI is, one hopes, so broad it will encompass all sorts of technological change without the need for an amendment to the definition.

Pretty Please, May I Take a Peek?

For years, opposing counsel has screamed about the undue burden of massive production. Under Amended Rule 34(a), where massive amounts of data may be in issue, you can now "sneak a peek" by sampling the ESI. If relevant information is found, game over—they have to produce.

If it is not found, however, you may have a very hard time convincing the court that you need still more data.

Pick Any Flavor You Like

Well, at least you can start out that way. Amended Rule 34(b) permits a requesting party to specify the format in which it would like to have ESI produced. Now, be wary—that isn't precisely "endgame." The other side may object to the format, and some negotiation or a court hearing may be necessary.

But the expectation on the part of electronic evidence experts is that the vast number of requests will be to have the data in native format, most often to preserve metadata or the ability to play with "what-if" scenarios using the native format. If no format is specified, the responding party is required to produce the ESI in the format in which it is ordinarily maintained or in "reasonably usable" format. This amendment is expected to produce a few face-offs before case law settles the dust.

We Don't Have to Answer Your Stinking Questions

This is true. Amended Rule 33(d) permits a responding party to produce ESI in answer to an interrogatory if the burden of deriving the answer will be substantially the same for both parties. A caveat here, however: Many lawyers suspect this is a minefield and would rather craft an actual answer rather than hand out data.

If you do choose to hand out data, the producing party must provide "sufficient detail to permit the interrogating party to locate and to identify, as readily as can the party served, the records from which the answer may be ascertained." It also must allow the requesting party "reasonable opportunity to examine, audit or inspect" the records identified. Where privileged documents or proprietary information may be involved, allowing access to ESI could be the equivalent of opening Pandora's box.

You Can't Have It, It's Inaccessible—So There!

Amended Rule 26(a)(1)(B) adds ESI to the list of what each party must disclose to the other during the opening stages of a case.

However, read a little farther down the rules and you'll find Amended Rule 26(b)(2)(B), which is expected to cause some trouble. It states that ESI need not be produced if the source is not reasonably accessible because of undue burden or undue cost. For instance, many companies no longer have the capacity to read some of their legacy backup tapes. For years, it has been true that restoring ESI from tape was problematic, though the problems have lessened with technological advances. Still, it will take a number of court cases to sort out the definition of "inaccessible."

Saying data is inaccessible doesn't necessarily make it so, and the other side is likely to file motions to compel production. Saying it is too expensive may not work, either. Judges have become increasing skeptical of statements that "it will cost millions of dollars" to restore—they are beginning to demand alternative estimates from other vendors when they think the cost claims are excessive. Moreover, the opposing party may be required to produce with all objections cast to the winds by the court if the requesting party can show that information is important, relevant and unavailable elsewhere; not such an undue burden considering respective resources; and important issues are involved.

Please, May I Have It Back?

Attorneys have lived in dread of having privileged documents inadvertently produced. Coming to the aid, Amended Rule 26(b)(5)(B) creates a "claw back" process whereby the producing party may inform the other side that privileged material has been produced and, moreover, the requester must "promptly return, sequester, or destroy the specified information and any copies it has" and "take reasonable steps to retrieve" any information already distributed.

Of course, the receiving party may also bring the matter to the court if there is a dispute on the matter of privilege.

My House or Yours?

The infamous "meet and confer" conference will be an earth shaker for many under the new rules, especially in jurisdictions where lawyers could get away with an exchange of correspondence or picking up the phone to chat with opposing counsel. Amended Rule 26(f) clearly states that electronic evidence must be discussed at the pretrial conference and that agenda items must include: (1) the preservation of discoverable information; (2) issues relating to disclosure or discovery of electronically stored information, including the form in which it should be produced; and (3) issues regarding claims of privilege or protection as trial preparation material, including whether to ask the court to include an agreement on nonwaiver of privilege in an order.

Many parts of this new rule will compel interest, but here is our take: Lawyers had better make a quick call to their computer forensics or e-discovery expert and make sure that the expert attends this conference. Moreover, a senior representative from the IT department of both parties is going to be needed. If e-evidence is under discussion, the expert will not, at that early juncture, have a full understanding of the IT infrastructure. Nor will the IT representative be qualified to discuss what is possible, desirable or best practice with respect to ESI preservation and production.

The heart of the new rule is an expectation that lawyers will work collaboratively and amiably early on to address e-discovery issues. We are not betting the mortgage money that this will go smoothly.

Somebody Throw Me a Lifeline

Somebody did, in the form of Amended Rule 37(f)—at least sort of. The so-called safe harbor rule says that "a court may not impose sanctions under these rules on a party for failing to provide electronically stored information lost as a result of the routine, good-faith operation of an electronic information system." But be wary. First, this does not obviate the requirements of a litigation hold (preserving evidence, suspending the provision of a document retention policy as needed and so forth). Indeed, abiding by the litigation hold is part of the very definition of good faith.

Moreover, although the court may not impose sanctions under "these rules," nothing prohibits the court from imposing sanctions based on other rules, statutes or regulations—and many commentators expect the courts may do exactly that.

The Men in Black Speak

We've had the opportunity to hear several federal judges speak about the new amendments recently, and their comments are insightful. Judge T.S. Ellis III, from the Eastern District of Virginia, says he is pleased that the rules are modest in scope and largely incorporate electronic information into current practice. He is quick to note that lawyers who are unreasonable or do not act in good faith with respect to the new amendments will not like anything he has to say. He also notes that, even if he chooses not to sanction unreasonable or bad faith attorneys, the reputation they've established with him will remain in his memory banks. His words certainly don't seem to bode well for those who might not try wholeheartedly to comply with the new amendments.

Magistrate Judge Thomas Rawles Jones, Jr., also from the EDVA, says he is concerned about the potential for abuse that the rules provide. Just as with paper evidence, he is worried about lawyers who seem always to play the game of "hiding the ball." He expressed a low tolerance for such behavior. He points out that "litigation is the highest form of gambling and electronic evidence has upped the ante. Your job is to come to a reasonable resolution. It is a high-stakes crap game to get involved in a lawsuit." A sidebar concern for Judge Jones is that litigious folks may try to "stick up" a corporation by filing a lawsuit where the e-discovery would be so crippling and costly, the corporation might fold its cards and cave in to settlement rather than go through the pain. This problem, he says, will have to be sorted out on a case-by-case basis.

Magistrate Judge Michel Urbanski, from the Western District of Virginia, observed, "This is hard stuff: all these changes reflect a generation gap. Many in the room [at a CLE] have not actually held a Bates stamper. These new rules are more a sea change for lawyers than judges—the lawyers' duties have really changed much more than ours." He also suggests that these rules cannot be read alone—that the comments to the rules are invaluable and will be used by judges to formulate their opinions because they contain a lot of background and "meat" not in the rules themselves. Ultimately, he predicts, "It will take a while to sort these rules out."

All three judges seemed to hold that opinion. So what can you do to avoid missteps while the sorting out is in progress? The basic message we heard from the men in black is to act ethically, reasonably and in good faith, bringing any concerns to them.

And that ends your crib sheet. It only remains to reiterate that it behooves all lawyers in federal practice to understand the new rules lest they become newspaper fodder as a result of their missteps.