Federal courts recently adopted e-discovery rules, designed to address the unique challenges posed by electronically stored information. The new rules went into effect on December 1, 2006, and they apply to companies of all types and sizes. In order to satisfy their e-discovery obligations, companies need to proactively manage their electronically stored information well before litigation begins.
An average employee sends or receives approximately 25 e-mail messages a day. That means a company with 50 employees generates more than 300,000 e-mail messages a year, many with attachments. Moreover, a single document sent to employees for comment may generate dozens, if not hundreds, of different copies or versions. Further complicating matters is the fact that e-mail messages and attachments may be stored in dozens of locations, including the company’s network servers, e-mail servers, hard drives, and backup tapes; outside hard drives, laptops and home computers; private or non-network e-mail accounts; personal data assistants, and even cell phones. All of these sources of information are fair game once a lawsuit is filed.
To make matters worse, many companies stockpile mass quantities of electronically stored information because they do not perceive any cost in doing so. Unlike paper documents, electronic data requires virtually no physical space to store – an entire warehouse of information can be stored on a few servers tucked away in a room no larger than a closet. The volume of electronically stored information tends to grow at an almost exponential rate and, as a result, companies often measure their data in “terabytes.” A single CD-ROM holds up to 650 megabytes, which is the equivalent of 325,000 typewritten pages; a terabyte equals 1 million megabytes, or 500 million pages of text. A company asked to print or photocopy a single terabyte of information would need more than 33,000 bankers’ boxes – roughly equivalent to 1,000 pick-up trucks filled with textbooks – to store their document production.
Thus, a seemingly innocuous pre-trial discovery request for documents has the potential to overwhelm and shut down an entire company. It can take months, and hundreds of thousands of dollars (or more), to review and produce relevant data. Consequently, the resolution of an e-discovery battle can often determine the outcome of an entire lawsuit.
A major component of the costs associated with e-discovery is the need to preserve the attorney-client and work product privileges. If a company inadvertently produces a document that is otherwise protected as privileged, then the protection is typically waived and the document becomes fair game. The company’s litigation counsel must therefore conduct a “privilege review” of all documents, and remove privileged documents prior to tendering the production. Because of the large volume of electronically stored information, however, there is a substantial risk that privileged documents will be overlooked and inadvertently produced.
In order to mitigate against this risk, the new rules require opposing counsel to discuss electronically stored information at the outset of a lawsuit, and to jointly prepare a plan to address the management of e-discovery. Typically, the e-discovery plan encompasses a “claw-back” and/or “quick-peek” agreement between the parties. A claw-back agreement is a formal understanding between the parties that the production of privileged information is presumed to be inadvertent, and does not waive any applicable privileges; the producing party may notify the receiving party of the privilege, at which point the receiving party must return the privileged materials. Under a quick-peek agreement, counsel are allowed to conduct a preliminary “attorneys-eyes-only” review of each other’s entire data collection before production, and designate those items that they believe are responsive to their discovery requests. The producing party then reviews a much smaller universe of materials and produces non-privileged documents together with a privilege log.
Another challenge posed by electronically stored information is its inherent volatility. Computer systems automatically recycle and reuse memory space, overwrite documents, reallocate file locations and free disk space, and take other routine maintenance steps. Consequently, computer data can be automatically altered or destroyed, even without the intent or knowledge of the user. Similarly, many companies have routine document destruction policies that allow for the recycling of electronic storage media.
Fortunately, the new rules recognize this aspect of electronic information, and prohibit a court from imposing sanctions against a party for losing or destroying data “as a result of the routine, good-faith operation” of a computer system. However, these protections only apply to information that was lost in “good faith.” The good faith requirement means, at a minimum, that a company is not permitted to exploit the routine operation of its computer system and avoid its discovery obligations by allowing relevant data to be destroyed. Instead, the company will need to institute a “litigation hold” and preserve relevant data once litigation is threatened or filed.
Companies need to proactively manage their electronically stored information and ensure that they are not unnecessarily stockpiling outdated data. This requires a formal record retention and destruction policy individually tailored to the needs of the particular company. There is no “standardized” policy that can satisfy each company’s need to balance inherently unique operational requirements, information technology infrastructure, regulatory and compliance responsibilities, and litigation requirements. It is also important that all employees understand – and actually follow – the record retention and destruction policy. For example, a policy that destroys back-up e-mail tapes every 30 days does little good if employees are storing e-mail messages on their hard drives, or sending them to their personal home accounts. In one recent case, a defendant neglected to follow its own destruction policy, and consequently was asked to produce e-mail messages from 93 backup tapes (all of which should have been destroyed under the policy), at an estimated cost of $6.2 million. Finally, if a company is currently engaged in litigation, or if a lawsuit is imminent, the company and its counsel must retain a forensic computer expert to assist them with electronic discovery. Even the best lawyer will never be as good as a forensic expert when it comes to obtaining, analyzing and reconstructing electronically stored information. Such expertise does not come cheap (a rule of thumb is $10,000 per gigabyte), but it is now a necessary expense that must be factored into every litigation budget.
Whether you would like to develop a record retention policy, or are engaged in litigation and facing e-discovery issues, the professionals at Levenfeld Pearlstein, LLC stand ready to assist you and your company manage electronically stored information.
This DataPoint is an excerpt from an in-depth article that provides a detailed analysis of these issues. To read the complete article, please click here.