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E-Discovery: A Closer Look at the New Federal Rules

by Stephanie Resnick

Winter 2007, Vol. 69, No. 4

Are you tired of being barraged with pamphlets, e-mails, articles, courses and presentations on e-discovery? Are you still wondering what e-discovery and the new federal rules mean to your clients and practice? Stop wondering. Here it is in a nutshell.

On December 1, 2006, the proposed new federal rules and amendments on e-discovery took effect. As a result, practitioners need to understand and deal with these rule amendments and their implications in the face of ever-changing technology. Essentially, the amended federal rules confer an obligation to focus on e-discovery and make sure that electronically stored information (ESI) on clients’ computer systems is produced to opposing parties, in accordance with the criteria set forth in the rule amendments.

This task is more daunting than it seems. Why? The discovery of ESI is different from conventional discovery of paper business records and is exponentially greater in volume than hard copy documents.
For instance, a large company’s computer network may store information in “terabytes,” each of which may represent more than 500 million typewritten pages. There may be literally hundreds of e-mails on a single employee’s computer for just a few days. In fact, a recent Federal Judicial Center presentation revealed that even a small company can generate millions of e-mail messages each year. For example, 100 employees multiplied by 250 working days multiplied by 250 messages (including those sent and received) equals 625,000 e-mail messages.

Moreover, computer information is dynamic. Information thought to be “deleted” from the computer system may in fact be retained with all drafts. Conversely, ESI believed to be “saved” may be unreadable or inadvertently deleted.

In addition, the form of production of ESI is significant because some forms, although maintained in the routine operations of a company, are virtually incomprehensible unless produced in another format.
In fact, data deleted from computer systems actually may be stored on backup tapes off site. As a result, the production of ESI can be a very costly and time-consuming process. The revised federal rules recognize the pitfalls of e-discovery and impose certain requirements on attorneys to deal with these issues. The following is a summary of the key amendments.

MAJOR RULE CHANGES
  • Rule 16(b)(5) & (6) provide that a scheduling order may include provisions for disclosure of ESI. The amendment also gives the court discretion to enter a stipulated order regarding claims of privilege following inadvertent disclosure.
  • Rule 26(a)(1)(B) imposes a duty to provide a description of ESI by category and location in the initial disclosures.
  • Rule 26(f)(3) & (4) provide for discussion of the issues among counsel related to preservation and disclosure of ESI prior to and at the Rule 16 conference. Rule 26(f) also addresses the form and manner of production (ESI may exist and be produced in a number of different ways). Moreover, Rule 26 addresses claims of privilege or protection of trial preparation material and inadvertent production of the same. Parties may agree on a procedure to assert claims of privilege after inadvertent production and ask the court to include it in a case management order.
  • Rule 26(b)(2)(B) provides that a party need not produce ESI if it is “not reasonably accessible” due to “undue burden” or “excessive cost.” The burden is on the responding party to show that the ESI is “not reasonably accessible.” The court may, nonetheless, order the production if the requesting party shows good cause and may impose certain conditions on its production. The factors to be considered are: Is the discovery cumulative? Does the burden outweigh the benefit? Does the expense outweigh the benefit? The court will also determine whether cost-shifting is appropriate. Zubulake v. UBS Warburg, 217 F.R.D. 309 (S.D.NY. May 2003) is instructive on this point.
    In the first of a series of seven Zubulake v. UBS Warburg cases, 217 F.R.D. 309 (S.D.NY. May, 2003), the District Court for the Southern District of New York set forth an e-discovery cost-shifting analysis.
    In Zubulake, a former employee (Zubulake) brought suit against her former employer UBS Warburg asserting gender discrimination and retaliation claims. UBS stored all e-mails sent or received by all employees onto backup tapes and also stored certain e-mails on optical disks. Zubulake moved for an order compelling production of archived e-mails to prove her claims.
    The court held that Zubulake was entitled to discovery of the requested e-mails because they were relevant to her claims. The court stated that cost-shifting should be considered only when electronic discovery imposes an “undue burden or expense” on the responding party. The court noted that the question of whether the production of documents was unduly burdensome turned primarily on whether “it is kept in an accessible or inaccessible format” and then went on to discuss examples of this distinction (217 F.R.D. at 318).

    The court then designed a seven-factor test to determine the proper cost-shifting analysis:
    (1) the extent to which the request is specifically tailored to discover relevant information;
    (2) the availability of such information from other sources;
    (3) the total cost of production, compared to the amount in controversy;
    (4) the total cost of production compared to the resources available to each party;
    (5) the relative ability of each party to control costs and its incentives to do so;
    (6) the importance of the issues at stake in the litigation; and
    (7) the relative benefits to the parties of obtaining the information. Zubulake, 217 F.R.D. at 322.
    Zubulake has been followed in numerous other jurisdictions.

  • Rule 26(b)(5)(B) (referred to as the “clawback amendment”) provides a mechanism for dealing with inadvertent production of ESI subject to a claim of privilege or work product protection. Upon discovery of the inadvertently produced ESI, a party must notify the recipient and set forth the basis for the privilege. The recipient must return, sequester or destroy information pending the court’s intervention. The recipient may not share ESI with a third party until the dispute has been resolved. Likewise, the producing party must preserve ESI pending resolution of the issue.
  • Rule 33(d) provides that, where an answer to an interrogatory can be derived from ESI, a party may specify those business records stored electronically provided that the burden of deriving the answer is substantially the same for both the requesting and responding party. The responding party must allow the requesting party an opportunity to examine, inspect and make copies of the ESI relied upon. Rule 34(a) & (b) provide that any party may serve a request to produce ESI and the requesting party may inspect, copy, test or sample ESI. While a request may specify a particular form of production, the producing party may object to the requested form. If no form is requested, the responding party must produce ESI in a form “ordinarily maintained” or “reasonably usable.”
    It should be noted that one form of production is sufficient. In addition, keep in mind the distinction between “documents” and “electronically stored information.” For instance, printed or downloaded e-mails are “documents,” while those that are not printed or downloaded are considered ESI. Accordingly, any requests should be both for electronic documents as well as electronically stored information.
    The court has specifically addressed the issue of sanctions for failing to produce ESI by creating a “safe harbor” in Rule 37(f). “Absent exceptional circumstances,” the court may not impose sanctions for failing to provide ESI lost as a result of routine good faith operation of an electronic information system.

    However, the rule does not shield a party who intentionally destroys information related to litigation or who exploits the “routine good faith operation” of a computer system. Moreover, good faith may require a party to modify certain features of the computer network to prevent loss of information, particularly if that party is subject to a preservation obligation.

  • Rule 45 pertains to subpoenas. A subpoena may compel production, inspection, copying, testing or sampling of ESI. It may also specify the form of production. Not only may a party inspect the materials, but they are also entitled to copy, test or sample ESI.
    Again, as with Rule 34, if a subpoena does not specify a form of production, the ESI must be produced in a form in which it is “ordinarily maintained” or in forms that are “reasonably usable.”
    Like Rule 26(b)(2)(B), a party may not be required to produce ESI if it is not “reasonably accessible because of undue burden or cost.” The court will use the standards set forth in Rule 26(b)(2)(C) to determine whether good cause has been shown to require production.
    Moreover, if ESI is produced in response to a subpoena and contains privileged or work product protected material, the producing party must notify the recipient in writing of the privilege and the basis for it, and after notification, the recipient must promptly return, sequester or destroy the ESI pending resolution. The producing party must maintain the ESI until the dispute is resolved.
BEST PRACTICES

What do we do in the beginning of a new e-discovery age? At the inception of the case, we should make inquiries in order to determine how our clients’ computer systems retain data, whether the ESI is in an accessible form, and whether a data retention policy exists. We should review our clients’ data retention policies and routine procedures regarding storage of electronic information. As soon as a claim is asserted, we should notify our clients to preserve potentially relevant or discoverable ESI. If the document retention policy is deficient, we may want to suggest to our clients different or better ways to store and preserve electronically stored data in the future.

Hiring a computer consultant for assistance should not be overlooked. We should prepare a stipulation that can be used in each case to control preservation and prevent destruction of ESI during the pendency of the case.

At a minimum, we should promptly send out a “preservation letter” or hold notice to our adversaries. We should also object to overly broad e-discovery demands.

Likewise, we should be certain that reasonable and non-burdensome ESI requests are honored. In the event of a dispute, a request for the search terms used to locate the data should be made and if necessary, get court approval to have them changed.

Also, don’t let your clients unilaterally determine what is relevant and responsive. Participate in the process. Clients should be reminded that a negative inference from lost or destroyed electronic evidence is frequently worse than the information itself. Remember that this area of the law is evolving and a court will apply a balancing test to be fair to all parties.

The new federal rules and amendments relating to e-discovery may at first appear challenging, but in reality they are a natural progression and simply formalize procedures that many courts have already employed. The new federal rules are designed to level the playing field and ensure fairness and consistency.

Stephanie Resnick is a partner in the litigation department of Fox Rothschild and a member of the Philadelphia Bar Association's Board of Governors.