April 2007
WHAT YOU NEED TO KNOW ABOUT THE NEW E-DISCOVERY RULES
BY JOHN L. KREIGER, ESQ.
As of December 1, 2006, a seismic shift occurred in the Federal Rules of Civil Procedure. The rules were amended to address the management, production and use of electronic information in litigation. Technology continues to advance at break-neck speed in our modern society. As technology changes the manner in which business is done, it is also having a profound impact on how lawyers conduct litigation. Conventional paper documentation and evidence is quickly becoming a relic of the past. More and more often, companies and individuals are creating, exchanging and storing information electronically. Electronically stored information (ESI) can take numerous forms, including, but not limited to, e-mails, web pages, word processing files, databases stored in computers or on magnetic disks, DVDs, CDs, and flash memory. ESI is also most likely located in multiple places (e.g., on various hard drives of an individual’s computer, in various locations on a system’s server). ESI may also include hidden information, such as metadata and embedded data. Invariably, ESI has the potential to be exponentially greater in volume than paper information. Moreover, producing ESI will inevitably become further compounded as new forms of technology are introduced and become part of everyday life. Consequently, the new amendments to the rules are intended “to be broad enough to cover all current types of computer-based information, and flexible enough to encompass future changes and developments.”1
Pretrial Conferences
The changes to Rules 16(b) and 26(a) and (f) require lawyers to cooperate with each other and confront electronic discovery issues very early in the litigation. Rule 16(b) adds two new topics that need to be addressed by counsel during their Rule 26 conference. Specifically, the lawyers are now required to propose “provisions for disclosure or discovery of ESI,” as well as “any agreements the parties have reached for asserting claims of privilege or protection as trial-preparation material after production” in the scheduling order. The amendment to Rule 26(a) requires a party to disclose ESI that the party may use in support of any claim or defense. Further, Rule 26(f) now requires the lawyers to discuss and establish the protocol that will govern disclosure or discovery throughout the case, including the disclosure or discovery of ESI, preserving discoverable ESI, the manner in which ESI is to be produced, as well as issues of privilege regarding inadvertently disclosed information. Consequently, lawyers have an obligation to learn about their clients’ electronic data and to be prepared to discuss it with opposing counsel at the outset of the case.
Rule 26(f) also includes several new amended paragraphs, including a new paragraph 4 that addresses “claw back” agreements. A claw back agreement is intended to govern situations where a disclosing party inadvertently discloses documents that are privileged or protected. The receiving party is usually required to notify the producing party of the disclosure, promptly return the documents and not admit them into evidence, and agree that no waiver has occurred. However, the standards for waiver differ greatly from jurisdiction to jurisdiction. Under the new Rule 26(b)(5)(B), a claim for privilege now includes information that has already been produced and codifies the provision for a claw back agreement. The parties are encouraged to discuss whether they can agree upon these or similar arrangements. Even in the absence of an agreement, the parties are restrained from spreading or using privileged or protected information. The rule specifically provides a mechanism for the court and the parties to effectively address the disclosure by requiring the receiving party to promptly return, sequester, or destroy the information and any copies it has and prohibiting the receiving party from using or disclosing the information until the claim is resolved with the court. Unfortunately, the substantive question of whether privilege or work product protection has been waived or forfeited is not addressed by the new rule, which undoubtedly leaves the issue to be tested and/or resolved by the courts in each jurisdiction.2
A checklist of ESI topics to be addressed at the 26(f) conference should probably include the following:
n steps each party will take to segregate and preserve electronic data,
n protocol for deleted information,
n protocol for back-up and archival data,
n file types and locations to be searched,
n number of relevant custodians,
n search terms for processing data,
n metadata and embedded data,
n accessible and inaccessible electronic data,
n the format of data production,
n whether to produce duplicate or near duplicate documents,
n time periods for processing and production,
n allocation of costs between the parties (cost-shifting),
n preservation of information,
n selecting a common electronic discovery vendor, and
n a “claw back” agreement regarding privilege or work-product production.
These new amendments recognize that early cooperation between opposing counsel on ESI will most likely reduce time, costs, and probably the risk of sanctions, and will establish a cost-effective yet fair scope of discovery.
Discovery Scope and Limits
The new amendment to Rule 26(b)(2) exempts a party from being required to produce documentation that is not “reasonably accessible because of undue burden or cost.” Rule 26(b) indicates that a party does not need to provide electronic discovery from sources that the party can prove are “not reasonably accessible.” This change inherently requires good communication between the lawyer and the client, as well as the lawyers’ IT staff and the client’s IT staff, so that the boundaries of what ESI is “not reasonably accessible” can be established. In the event a producing party determines ESI to “not be reasonably accessible,” that party may be relieved of having to initially produce the ESI, but the party will still need to identify the ESI to the requesting party as information that is “not reasonably accessible.” If such a designation is made, and the requesting party makes a showing of good cause, the new rule allows the court latitude in imposing conditions on the disclosure.3
Rules 33 and 34 have both been amended to address ESI. Rule 34 further recognizes the logistical differences between producing paper documents and ESI. For example, paper documents are usually Bates numbered and produced. However, when it comes to ESI, it may be maintained in several different native formats (e.g., TIFF, PDF, or HTML) or in different programming formats (e.g., Microsoft Word, Microsoft Excel), all of which could be printed, copied or imaged differently and result in an extremely unmanageable and/or costly production. The new Rule 34 allows the requesting party to specify the form in which ESI is to be produced. Although, the disclosing party is also entitled to object to the requested form and, in turn, offer production in a different format. If the requesting party fails to identify the format in which production is desired, the rule now permits the disclosing party to decide how the documentation will be produced. If the parties are unable to make a decision, the court will ultimately resolve the issue and specify the form of production. In the absence of an agreement or court order, the rule allows a party to produce its ESI in the form “in which it is ordinarily maintained” or in forms that are “reasonably usable.” Again, this new rule underscores the importance that needs to be placed on the lawyer’s obligation to understand the limitations of the client’s and the lawyer’s own IT departments, and what each is capable of and not capable of doing.
Failure to Disclose - Sanctions
Under the new rules and recent case law, parties now have a duty to preserve potentially relevant data, which includes suspending routine data destruction.4 This is known as a “litigation hold.” A court in the Ninth Circuit has indicated that the duty to preserve and institute a “litigation hold” begins when the party knows or reasonably should have known that evidence may be relevant to current litigation or “probable”/likely future litigation.5 Events that may trigger a “litigation hold” include the filing or service of a complaint, a request to preserve evidence, or even a cease and desist letter. Commentators warn that it is important for a lawyer to send a “litigation hold” letter to the client as soon as possible because adversaries who are well-versed in electronic discovery will demand production of this correspondence. Although the correspondence will most likely be privileged, it will still have to be disclosed on a privilege log, which will result in a disclosure to the other side as to whether or not a party fulfilled its preservation obligation. Failure to comply and institute a litigation hold may result in severe sanctions being levied against the client and/or the lawyer, which could include monetary sanctions, evidentiary sanctions, adverse inference instructions, dismissal or other adverse judgment.6
A new amendment to Rule 37(f), however, includes a “safe harbor” provision for ESI. “Absent exceptional circumstances, a court may not impose sanctions under these rules on a party for failing to provide ESI lost as a result of the routine, good-faith operation of an electronic information system.” Certainly, what constitutes “exceptional circumstances” and “good-faith” will be hotly contested issues that will have to be tested with the courts.
In-house Counsel
Due to the fact that the new rules require early action, it is certainly good practice for in-house counsel to prepare internally for electronic discovery before any litigation ensues. Once litigation begins, the burden will invariably fall upon the shoulders of in-house counsel to institute the “litigation hold” and suspend any automatic destruction of documents, supervise and identify the distribution of and compliance with litigation holds, communicate and establish procedures about the location and preservation of ESI, and establish who will testify regarding ESI. In order to accomplish these tasks, in-house counsel must have a good understanding of the company’s electronic data storage capability and procedures. Moreover, in-house counsel should act as a liaison between outside counsel, the company’s IT department, and company officers.
A Final Note
The Sedona Conference is a non-profit research and educational institute dedicated to the advanced study of law and policy and is a good electronic discovery resource. At its website located at http://www.thesedonaconference.org, one can find links to white papers addressing a wide variety of electronic discovery topics, including selecting electronic discovery vendors, document management and retention issues, the production of electronic data in litigation, and a glossary of electronic discovery terms.
Lawyers and the courts are constantly required to interpret and apply the Federal Rules of Civil Procedure to an ever-changing technological environment. Hopefully, the new rules will encourage greater communication between lawyers, as well as between lawyers and judges, and result in a higher level of professionalism and less confusion or antagonism in the discovery process as we are all dragged kicking and screaming into the 21st century.
John L. Krieger is a member of Lewis and Roca LLP’s intellectual Property and Technology Practice Group and concentrates his practice on intellectual property litigation in both state and federal court. Mr. Krieger currently serves as a Lawyer Representative to the Ninth Circuit Judicial Conference for the District of Nevada.
1 Advisory Committee Note to Rule 34.
2 See Advisory Committee Note to Rule 26(b)(5)(B) (“Rule 26(b)(5) does not address whether the privilege or protection that is asserted after production was waived by the production.” And, new rule merely “provides a procedure for presenting and addressing these issues.”)
3 One court set forth a test for analyzing the scope and cost of “inaccessible” electronic information and acknowledged that the “inaccessibility” of certain information will depend upon the medium in which it is stored. See Zubulake v. UBS Warburg LLC, 217 F.R.D. 309, 318-320 (S.D.N.Y. 2003).
4 Duty to preserve relevant documents arises “[o]nce a party reasonably anticipates litigation.” Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 218 (S.D.N.Y. 2003). Courts in the Ninth Circuit have recognized that a party should “reasonably anticipate litigation” once a demand letter is sent. See, e.g., Housing Rights Center v. Sterling, No. CV 03-859 DSF, 2005 WL 3320739 *2 (C.D. Cal. Mar. 2, 2005).
5 In re Napster, Inc. Copyright Litig., 462 F. Supp. 2d 1060, 1067 (N.D. Cal. 2006).
6 In re Napster, 462 F. Supp. 2d at 1070-1078 (assessing applicability of several options for sanctions for failure to institute litigation hold).