e-discovery 2.0

In the eDiscovery universe, hot trends and evolving technologies tend to capture the attention of the legal community.  Discoverable data sources have been the focus in the courtroom for quite some time, and just like the “popular kids” from high school, email has held the crown of eDiscovery darling.  Not surprisingly, the more time end-users spend in a specific medium (on Facebook, for example), the more likely data will be created – and as that data multiplies, it has the potential to become compelling in discovery.  It seems that many U.S. organizations are electing to allow social media use at work and for work, rather than blocking access.  For obvious reasons, granting this access is culturally desirable, but from an eDiscovery perspective social media use introduces new complications.  However, don’t be mystified.  There is nothing that new here.

Recently, Symantec issued the findings of its second annual Information Retention and eDiscovery Survey, which examined how enterprises are coping with the tsunami of electronically stored information.  Having lost some popularity, email came in third place (58%) to files/documents (67%) and database/application data (61%) when respondents were asked what type of documents were most commonly part of an eDiscovery request.  The new kid on the block for data sources is social media, reported by 41% of those surveyed.  Social media is in essence no different than any other data type in the eDiscovery process, it’s just the newest.  Said another way; social media is the new email.

Of course, it’s no longer news to proclaim that communications from social networking sites are discoverable.  What is newsworthy is the question of how to effectively store, manage and discover these communications which come in such varying forms, making the logistics of doing so for social media different than for traditional mediums.  Like email, social media is used by everyone (ubiquitous), is viral (fast), has mixed uses (professional and personal) and there is a lot of it (high volume).  Unlike email, social media comes in many different forms (Facebook, LinkedIn, Twitter, etc.), is not controlled within an organization’s firewalls (custody, possession and control issues), and has more complex requirements within the information governance lifecycle (technology is needed to ingest social media into an archive).

The two main areas to examine in relation to social media use and an organization’s policies are: 1) the legal issues that apply specifically to the organization, and 2) the logistical and technical requirements for preservation and collection.  Essentially, what is the organization’s policy surrounding social media use, and how can the information be accessed if need be? Luckily, technology exists that is nimble enough to be able to ingest social media and archive it in accordance with an organization’s policy, should one exist.  Organizations that have recognized social media as the newest kid on the block have, ideally: developed a social media policy, purchased (or deployed) collection and retention technology, and instituted training for their employees.  They have also integrated social media into their information governance strategy and document retention policy. Remember, not all organizations will have to archive social media, but all should address social media with a policy and training.

Other organizations have not accepted social media as part of the evolutionary process of eDiscovery.  They proceed at their own peril – as did the organizations that did not control their email some ten years ago!

These organizations will be in crisis when they need to collect social media for litigation and will most likely have a large lesson in damage control, as well as an equally large bill.  They will be uneducated, ill-prepared and overwhelmed about how to discover social media.  Without a policy, they will have to over collect by default, which will drive up the costs for collection and possibly for downstream review.  Given that the aforementioned survey found nearly half of the respondents did not have an information retention policy in place, and of this group, only 30% were discussing how to do so, it is likely that many of these organizations do not yet have a social media policy either.

With this background in mind, organizations should evaluate which laws and regulations apply to their organization, develop a policy and train their employees on that policy.  Plus ça change, plus c’est la même chose.

For more information about how IT and Legal can manage the impact of social media on their organization and to learn how archiving social media can be accomplished, please join this webcast from Symantec.

It is axiomatic that the law helps those who help themselves.  Perhaps nowhere is that truism more applicable than in the context of electronic discovery.  The organization that implements an effective information governance strategy – including developing reasonable data retention policies – will likely avoid court sanctions and reduce its legal costs.  This was confirmed in a recent industry survey, which found that organizations “help themselves” when they develop information retention policies.  According to the survey, better retention practices drive dramatically better outcomes in litigation, particularly in the context of retention and preservation.

Such a finding is echoed by a recent case issued from the District of Indiana.  In Haraburda v. Arcelor Mittal U.S.A., Inc. (D. Ind. June 28, 2011), the court tied a litigant’s preservation duty to its document retention efforts.  In order to discharge its duty to reactively preserve evidence, the court reasoned that enterprises must proactively create “a ‘comprehensive’ document retention policy that will ensure that relevant documents are retained.”  Failing to implement a retention policy often results in a loss of key information.  And this, opined the court, may result in sanctions.

Such a finding is not limited to an isolated case.  Court decisions from across the United States in 2011 have found the same connection; better data retention practices yield more successful document preservation results.  For example, in the E.I. du Pont de Nemours v. Kolon Industries (E.D. Va. April 27, 2011), the plaintiff manufacturer defeated a sanctions motion due to its effective information retention procedures.   The manufacturer implemented a document retention policy that typically kept emails from former employee accounts for 60 days, after which the emails were overwritten and deleted.   Among the emails deleted pursuant to that policy were several that the defendant argued were relevant to its counter-claims.  The DuPont court declined to impose sanctions, however, since the emails in question were overwritten before the duty to preserve was triggered.  Instead, the court lauded the manufacturer’s preservation efforts, finding that it “took positive steps reasonably calculated to ensure that information . . . was preserved for litigation.”  Because the manufacturer faithfully observed its established retention policy, it reduced a stockpile of email, made relevant documents unavailable for discovery and was still protected from court sanctions.

Similarly, in Viramontes v. U.S. Bancorp (N.D.Ill. Jan. 27, 2011), the defendant bank relied on its data retention protocols to stave off a sanctions motion after deleting several years of email.  Because those emails were destroyed pursuant to a neutral retention policy before a preservation duty attached, the bank was protected from sanctions under the Federal Rule of Civil Procedure 37(e) safe harbor for the destruction of electronic information.

The converse, of course, is also true.  Those organizations that failed to implement effective retention policies have fared poorly in discovery because they have not preserved relevant ESI.  Take the defendant, for instance, in Northington v. H & M International (N.D.Ill. Jan. 12, 2011).  The court issued an adverse inference jury instruction against that company because it spoliated significant emails and other data.  The genesis of this spoliation was the company’s failure to establish a formal document retention policy.  Instead of having a thoughtful, top-down approach, “data retention . . . was evidently handled on an ad hoc, case-by-case basis.”  The company’s failure to develop a pre-litigation information retention policy eventually led to the loss of key information and the court’s sanctions award.

These recent cases and others confirm the correlation between retention and preservation.  Simply put, proactive retention leads to better preservation in eDiscovery.  Anything less could be disastrous in litigation.

Symantec today issued the findings of its second annual Information Retention and eDiscovery Survey, which examined how enterprises are coping with the tsunami of electronically stored information (ESI) that we see expanding by the minute.  Perhaps counter intuitively, the survey of legal and IT personnel at 2,000 enterprises found that email is no longer the primary source of ESI companies produced in response to eDiscovery requests.  In fact, email came in third place (58%) to files/documents (67%) and database/application data (61%).  Marking a departure from the landscape as recently as a few years ago, the survey reveals that email does not axiomatically equal eDiscovery any longer.

Some may react incredulously to these results. For instance, noted eDiscovery expert Ralph Losey continues to stress the paramount importance of email: “In the world of employment litigation it is all about email and attachments and other informal communications. That is not to say databases aren’t also sometimes important. They can be, especially in class actions. But, the focus of eDiscovery remains squarely on email.”   While it’s hard to argue with Ralph, the real takeaway should be less about the relative descent of email’s importance, and more about the ascendency of other data types (including social media), which now have an unquestioned seat at the table.

The primary ramification is that organizations need to prepare for eDiscovery and governmental inquires by casting a wider ESI net, including social media, cloud data, instant messaging and structured data systems.  Forward-thinking companies should map out where all ESI resides company-wide so that these important sources do not go unrecognized.  Once these sources of potentially responsive ESI are accounted for, the right eDiscovery tools need to be deployed so that these disparate types of ESI can be defensibly collected and processed for review in a singular, efficient and auditable environment.

The survey also found that companies which employ best practices such as implementing information retention plans, automating the enforcement of legal holds and leveraging archiving tools instead of relying on backups, fare dramatically better when it comes to responding to eDiscovery requests. Companies in the survey with good information governance hygiene were:

• 81% more likely to have a formal retention plan in place
• 63% more likely to automate legal holds
• 50% more likely to use a formal archiving tool

These top-tier companies in the survey were able to respond much faster and more successfully to an eDiscovery request, often suffering fewer negative consequences:

• 78% less likely to be sanctioned
• 47% less likely to lead to a compromised legal position
• 45% less likely to disclose too much information

This last bullet (disclosing too much information) has a number of negative ramifications beyond just giving the opposition more ammo than is strictly necessary.  Since much of the eDiscovery process is volume-based, particularly the eyes-on review component, every extra gigabyte of produced information costs the organization in both seen and unseen ways.  Some have estimated that it costs between $3-5 a document for manual attorney review – and at 50,000 pages to a gigabyte, these data-related expenses can really add up quickly.

On the other side of the coin, there were those companies with bad information governance hygiene.  While this isn’t terribly surprising, it is shocking to see how many entities fail to connect the dots between information governance and risk reduction.  Despite the numerous risks, the survey found nearly half of the respondents did not have an information retention plan in place, and of this group, only 30% were discussing how to do so.  Most shockingly, 14% appear to be ostriches with their heads in the sand and have no plans to implement any retention plan whatsoever.  When asked why folks weren’t taking action, respondents indicated lack of need (41%), too costly (38%), nobody has been chartered with that responsibility (27%), don’t have time (26%) and lack of expertise (21%) as top reasons.  While I get the cost issue, particularly in these tough economic times, it’s bewildering to think that so many companies feel immune from the requirements of having even a basic retention plan.

As the saying goes, “You don’t need to be a weatherman to tell which way the wind blows.”  And, the winds of change are upon us.  Treating eDiscovery as a repeatable business process isn’t a Herculean task, but it is one that cannot be accomplished without good information governance hygiene and the profound recognition that email isn’t the only game in town.

For more information regarding good records management hygiene, check out this informative video blog and Contoural article.

A federal jury returned a stunning, $919 million verdict yesterday for DuPont in a trade secret theft case.  In E.I. du Pont de Nemours v. Kolon Industries, the verdict was the culmination of a two-and-a-half year battle that DuPont waged against Kolon Industries to prove that Kolon had misappropriated key aspects of its formula for Kevlar®.

The court delivered a decisive blow shortly before trial when it found that Kolon had destroyed emails and other electronically stored information linking it to the trade secret theft.  The sanction for that spoliation was an instruction to the jury that Kolon executives and employees had deleted key evidence after the company’s preservation duty was triggered.

The verdict against Kolon is just the beginning of its problems.  DuPont will now request over $50 million in punitive damages from Kolon, another $30 million for reimbursement of its attorney fees and a permanent injunction forbidding Kolon from using the stolen trade secrets.  Not surprisingly, Kolon’s stock dropped 15% after news of the verdict reached the markets today.

The eDiscovery sanctions order and corresponding verdict make it clear that organizations should invest the time and effort to properly prepare for litigation and discovery.  As we argued in our previous post on the DuPont case, having the right tools in place could have prevented much of the spoliation – and the resulting instruction to the jury – that occurred in the DuPont case.

We’ve all heard the phrase that “everything is bigger in Texas” and the little “mini-conference” held in Dallas, TX last Friday was no exception.  The Discovery Subcommittee held a small, one-day conference to tackle some big issues related to preservation and sanctions that could ultimately lead to amendments to the Federal Rules of Civil Procedure (Rules).

The Subcommittee’s primary purpose was to discuss “preservation and sanctions issues” by using the following topics as guidelines:

• The nature and scope of the current “problem”
• The role of technology
• Possible solutions to the problem

Counsel from large companies like Google, General Electric, and Exxon Mobil participated side by side with outside counsel from both plaintiffs’ and defense bar to discuss what some characterized as a lack of clear direction in the current Rules.  Government lawyers, academics, and federal judges including Judges David Campbell (D. Az.), Shira Scheindlin (S.D.N.Y.), Paul Grimm (D. Md.), John Facciola (D.D.C.), Lee Rosenthal (S.D. Tx.), Michael Mosman (D. Ore.), and Nan Nolan (N. D. Ill.) helped round out the field to make for a lively discussion with multiple perspectives represented.  The following summary highlights some of the key viewpoints and areas of contention debated throughout the day.[1]

The nature and scope of the problem

An underlying theme throughout the day was whether or not preservation and sanctions challenges warrant amending the Rules.  Not surprisingly, counsel for large organizations that commonly bear the brunt of large and frequent document requests lobbied for rule amendments that provide more certainty around when the duty to preserve evidence is triggered, the scope of that duty, and how sanctions are applied.

In support of this position, some corporate attorneys argued that the lack of certainty in the current Rules unfairly requires organizations to err on the side of preserving evidence early and broadly to avoid the risk of sanctions.  Since preserving evidence can be extremely expensive and the duty may be triggered before litigation even begins, they argue that changes to the Rules are necessary.  One corporate attorney framed the issue by providing specific details about costs associated with preserving data for different cases.  He explained that in one situation, his organization has spent more than $5 million to locate, collect, preserve, and maintain data for an ongoing matter even though a complaint has never been filed.  He went on to explain the dilemma by stating: “not preserving asks us to take a chance with our reputation.”

In response, a few attendees questioned how preservation related expenses could spiral so high even before attorney review.  Others pointed out that if the current Rules were better utilized, specifically the meet-and-confer provisions of Rule 26(f), then many preservation challenges could be minimized.  Supporters of better Rule 26(f) engagement complained that counsel for large organizations often refuse to discuss preservation related issues and thereby fuel problems related to the scope of preservation themselves.   Others suggested that if organizations enforced better information management policies instead of keeping “everything forever”, then the magnitude of the problem could be reduced.

Technology

The Subcommittee members generally agreed that the evolution of technology has led to massive data growth which creates new electronic data challenges.  Electronically stored information (ESI) is often duplicative, typically resides in many different technology systems, and can be difficult to locate on a case by case basis.  There was some thoughtful discussion about how data archiving and cloud computing technology are important tools for helping organizations manage these information problems more effectively.  Another commentator acknowledged that although “predictive coding” may be helpful for “reviewing” data, it requires significant human involvement and simply does not solve the problem at hand.

Surprisingly, aside from the comments above, the technology discussion focused mainly on the issue of what constitutes “possession, custody or control” under Rule 34 in today’s environment of social media, cloud computing, and mobile devices.  Unfortunately, there was no discussion of either the role legal technology solutions play in minimizing risk and cost or of the impact the current Rules have on public policy.  For example, the Subcommittee did not address whether organizations that invest in technology in order to automate their internal data management and electronic discovery process should be afforded more protection under Rule 26(b)(2)(B) (“not reasonably accessible because of undue burden or cost”) than organizations that choose not to invest in technology.  If an organization’s technology investment (or lack thereof) is not a factor, does Rule 26(b)(2)(B) have the unintended effect of stifling meaningful legal technology investment by some organizations?  Similarly, do advancements in legal technology diminish the need for a Rule amendment that, at its core, is geared toward reducing costs?  In my opinion, the manner in which organizations are using technology today is an important factor that warrants deeper discussion and a subject I intend to address in a future publication soon.  Stay tuned.

Possible solutions

Discussion about possible solutions to the problem revealed more about the contrasting viewpoints in the room.  Notably, the Department of Justice representatives and those typically aligned with the plaintiffs’ bar tended to lobby for better adherence to the framework contained in the existing Rules in lieu of drafting new Rules.  These folks generally appeared to fall into the “No New Rule” or “Not Yet” camp, and cited the relative newness of the 2006 Rule Amendments and the fact that only about one percent of federal cases involve sanctions in support of their position that Rule amendments are premature or not needed.  Along the same lines, many called for further study and evaluation of the issues through organizations such as The Sedona Conference and the 7th Circuit Electronic Discovery Pilot Program.  Others referenced the importance of looking to evolving case law for more guidance before moving forward with Rule amendments.

In stark contrast, those on the other side of the aisle that typically represent large organizations, lobbied for bright line rules or at least “guideposts” to provide more certainty regarding preservation.  For example, one participant suggested that the duty to preserve evidence should begin when a complaint is served.  Another suggested that the duty should be triggered when a potential litigant is “reasonably certain to be a party to litigation” – a standard that is arguably narrower than the commonly applied “reasonably anticipates litigation” standard articulated in Judge Scheindlin’s frequently cited Zubulake v. UBS Warburg line of decisions.

Those calling for more certainty regarding triggering events also provided recommendations for addressing the scope of the preservation duty and the application of sanctions.  A suggestion to incorporate language that presumptively limits the number of custodians (10) and documents (by age) met resistance on the grounds that trying to apply a one-size-fits-all rule fails to acknowledge that the facts and circumstances of every case are different and so too are the litigants.  Similarly, recommendations to limit sanctions for evidence spoliation to situations where a litigant’s conduct is “intentional” or “willful” were met with a chilly reception by those favoring better adherence to the current Rules.

Conclusion

Time did not permit comprehensive discussion and analysis of every perspective, but the mini-conference highlighted the complexity surrounding preservation and sanctions issues and revealed some polarized viewpoints about how to solve those issues.  Perhaps one glimmer of consensus was the acknowledgement that “pre-litigation” obligations to preserve evidence before service of a complaint is often challenging for large organizations.  However, whether this and other issues should be addressed through better education, more stringent enforcement of existing rules, or by modifying the existing rules to include more “guideposts” remains unsettled.

What do you think?  Please respond to the poll, above right, to let us know whether you think amending the Federal Rules of Civil Procedure (FRCP) is necessary to address some of the preservation and sanctions issues discussed above.

To join the conversation and receive automatic updates when new information is posted to this blog, please subscribe to e-discovery 2.0.

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[1] A more exhaustive list of participants and sample questions was incorporated into the Federal Rules Advisory Committee’s June 29, 2011 memorandum announcing the mini-conference.  Similarly, the events leading up to the mini-conference are described in more detail as part of my previous postings on the same subject.

If you have been following my previous posts regarding possible amendments to the Federal Rules of Civil Procedure (Rules), then you know I promised a special interview with former United States Magistrate Judge Ron Hedges.  The timing of the discussion is perfect considering that a “mini-conference” is being hosted by a Federal Rules Discovery Subcommittee today (September 9th) in Dallas, TX.  The debate will focus on whether or not the Rules should be amended to address evidence preservation and sanctions.  I am attending the mini-conference and will summarize my observations as part of my next post.  In the meantime, please enjoy reading the dialogue below for a glimpse into Judge Hedges’ perspective regarding possible Rule amendments.

Nelson: You were recently quoted in a Law Technology News (LTN) article written by Evan Koblentz as saying, “I don’t see a need to amend the rules” because these rules haven’t been around long enough to see what happens.  Isn’t almost five years long enough?

Judge Hedges: No.  For the simple reason that both attorneys and judges continue to need education on the 2006 amendments and, more particularly, they need to understand the technologies that create and store electronic information.  The amendments establish a framework within which attorneys and judges make daily decisions on discovery.  I have not seen any objective evidence that the framework is somehow failing and needs further amendment.

Nelson: You also said the “big problem” is that people don’t talk enough.  What did you mean?  Hasn’t the Sedona Cooperation Proclamation made a difference?

Judge Hedges: The centerpiece of the 2006 amendments (at least in my view) is Rule 26(f).  I think it is fair to say that the legal community’s response to 26(f) has been, to say the least, varied. Civil actions with large volumes of ESI that may be discoverable under Rule 26(b)(1) cry out for extensive 26(f) meet-and-confer discussions that may take a number of meetings and require the presence of party representatives from, for example, IT.  There is an element of trust required between adversary counsel (with the concurrence of the parties they represent) that may be difficult to establish – but some cooperation is necessary to make 26(f) work.  Overlay that reality with our adversary system and the duty of attorneys to zealously advocate on behalf of their clients and you can understand why cooperation isn’t always a top priority for some attorneys.

However, “transparency” in discussing ESI is essential, along with advocacy and the need to maintain appropriate confidentiality. That’s where the Sedona Conference Proclamation can make a big difference. Has the Proclamation done that? It’s too early to reach a conclusion on that question, but the Proclamation is often cited and, as education progresses in eDiscovery, I am confident that the Proclamation will be recognized as a means to realize the just, speedy, and inexpensive resolution of litigation, as articulated under Rule 1.

Nelson: You also mentioned that the Federal Rules Advisory Committee might be running afoul of the Rules Enabling Act.  Can you explain?

Judge Hedges: There is a distinction between “procedural” and “substantive” rules.  The Rules Enabling Act governs the adoption of the former.  Rule 502 of the Federal Rules of Evidence is an example of a substantive rule that was proposed by the Judicial Conference.  However, since Rule 502 is a rule dealing with substantive privilege and waiver issues, it had to be enacted into law through an Act of Congress.  I am concerned that proposals to further amend the Federal Rules of Civil Procedure may cross the line from procedural to substantive.  I am not prepared to suggest at this time, however, that anything I have seen has crossed the line.  Stay tuned.

Nelson: If you had to select one of the three options currently being considered (see page 264), which option would you select and why?

Judge Hedges: To start, I would not choose option 1, which presumes that the Rules can reach pre-litigation conduct consistent with the Rules Enabling Act.  My concern here is also that, in the area of electronic information, a too-specific rule risks “overnight” obsolescence, just as the Electronic Communications Privacy Act, enacted in 1986, is considered by a number of commentators to be, at best, obsolescent.  Note also that I did not use the word “stored” when I mentioned electronic information, as courts have already required that so-called ephemeral information be preserved.  Nor would I choose option 2.  Absent seeing more than the brief description of the category on page 264, it seems to me that option 2 is likely to do nothing more than be a restatement of the existing law on when the duty to preserve is “triggered.”

So, by default, I am forced to choose option 3.  I presume a rule would say something like, “sanctions may not be imposed on a party for loss of ESI (or “EI”) if that party acted reasonably in making preservation decisions.”  There are a number of problems here. First, in a jurisdiction which allows the imposition of at least some sanction for negligence, all the rule would likely do is be interpreted to foreclose “serious” sanctions. Isn’t that correct? Or is the rule intended to supersede existing variances in the law of sanctions?  At that point, does the rule become “substantive”?   Second, how will “reasonableness” be defined?  Reasonableness supposes the existence of a duty – in this case, a duty to preserve.  For example, is there a duty to preserve ephemeral data that a party knows is relevant?  We come back full circle to where we began.

Remember, Rule 37(f) (now 37(e)) was intended to provide some level of protection against the imposition of sanctions, just as the categories are intended to.  Right?  And five years later 37(e) remains defined variously to be a “safe harbor” or a “lighthouse” by some lawyers such as Jonathan Redgrave or an “uncharted minefield” by others like me.

Nelson: What about heightened pleading standards after the Iqbal and Twombly decisions?  Do these decisions have any relevance to electronic discovery and the topic at hand?

Judge Hedges: Let me begin by saying that I am no fan of Twombly or Iqbal. The decisions, however well intended, have led to undue cost and delay all too often.  Not only is motion to dismiss practice costly for parties, but it imposes great burdens on the United States Courts and, as often as not, leads to at least one other round of motion practice as plaintiffs are given leave to re-plead.  All the while, parties have preservation obligations to fulfill and, in the hope of saving expense, discovery is often stayed until a motion is “finally” decided.  I would like to see objective evidence of the delay and cost of this motion practice (and I expect that the Administrative Office of the United States has statistical evidence already).  I would also like to see objective evidence from defendants distinguishing between the cost of motion practice and later discovery costs.

Putting all that aside, and if I had to accept one option, I would choose to allow some discovery that is integrated to the motion practice.  First, even without the filing of a responsive pleading, there should be a 26(f) meet-and-confer to discuss, if nothing else, the nature and scope of preservation and the possibility of securing a Rule 502(d) order. Second, while I have serious concerns about “pre-answer discovery” for a number of reasons, I would have the parties make 26(a)(1) disclosures while a motion to dismiss is pending or leave to re-plead has been granted in order to address the likely “asymmetry of information” between a plaintiff and a moving defendant.  Once the disclosures are made, I would allow the plaintiff to secure some information identified in the disclosures to allow re-pleading and perhaps obviate the need for continued motion practice.

All of this would, of course, require active judicial management.  And one would hope that Congress, which seems so interested in conserving resources, would recognize the vital role of the United States Courts in securing justice for everyone and give adequate funding to the Courts.

A famous quote from intellectual George Santayana provides an appropriate backdrop for organizations to better understand why they should deploy technology to strengthen their litigation response effort.  As Santayana explained in The Life of Reason: Reason in Common Sense, “[t]hose who cannot remember the past are condemned to repeat it.”

The “past” can be a powerful playbook in the game of eDiscovery.  Fortunately for organizations, the lessons of eDiscovery history abound.  Indeed, the decisions that courts issue every day across the United States and in other countries provide substantial guidance on what organizations should and should not do to properly prepare for the discovery phase of litigation.

One of the principal lessons that can be gleaned from American court cases in 2011 is that technology can help organizations address the demands of eDiscovery in litigation.  Technology has assumed such a significant role because it facilitates the oversight process that lawyers must engage in to ensure that pertinent documents are preserved for discovery.  This year alone, the failure to exercise that oversight has in many instances culminated in evidence destruction and sanctions.

That message was emphasized this summer by a Virginia based federal court in a hotly contested trade secret dispute.  In E.I. du Pont de Nemours v. Kolon Industries (E.D. Va. July 21, 2011), the court determined that it would issue an adverse inference jury instruction against defendant Kolon Industries as a sanction for its evidence spoliation.  The spoliation at issue occurred when Kolon deleted emails and other records relevant to DuPont’s trade secret claims.  After being apprised of the lawsuit and then receiving multiple litigation hold notices, several Kolon executives and employees met together and identified emails and other documents that should be deleted.  The ensuing destruction was staggering.  Nearly 18,000 files and emails were deleted.  Furthermore, many of these materials went right to the heart of DuPont’s claim that key aspects of its Kevlar© formula were allegedly misappropriated to improve Kolon’s competing product line.

Surprisingly, however, the court did not finger the Kolon employees as the principal culprits for spoliation.  Instead, the court laid the blame on Kolon’s attorneys and executives, reasoning they could have prevented the destruction of information through better oversight.  The hold process was particularly flawed.  The notices were either too limited in their distribution, ineffective since they were prepared in English for Korean-speaking employees, or too late to prevent or otherwise alleviate the spoliation.  Given the logistical challenges of implementing a hold in this instance, perhaps only the automated functions of technology such as archiving software might have strengthened the oversight process and obviated the spoliation that took place.

The lack of attorney oversight also factored into another pertinent sanctions order this year, this time from a federal court in Chicago.  In Northington v. H & M International (N.D.Ill. Jan. 12, 2011), the court issued an adverse inference jury instruction against a company that destroyed relevant emails and other data.  The spoliation occurred in large part because the company neglected to establish a global litigation response effort.  For example, there was no process for issuing or ensuring compliance with a litigation hold.  Nor was counsel engaged in the critical steps of preservation, identification or collection of electronically stored information (ESI).  Into this vacuum stepped rank and file employees – some of whom were accused by the plaintiff of harassment – who were tasked with identifying and collecting discoverable emails from their workstations.  Predictably, key documents were never found and the court had little choice but to promise to inform the jury that the company destroyed evidence.

The problems associated with the lack of oversight in DuPont and Northington are compelling reasons why organizations should consider using technology tools as part of their overall litigation response strategy.  One of the most helpful tools in this regard is archiving software.  Indeed, having the right archiving solution in place might have preserved the spoliated records in these actions.

For example, archiving software can be programmed to prevent employees from deleting emails and other electronically stored information.  By ingesting data into a central repository and leaving copies of the materials on local computers, employees could have access to their archived records.  They would not, however, be able to delete those documents from the software archive.  In addition, a litigation hold could have been placed on archived data to prevent automated retention rules from overwriting information.  Either of these features might have prevented much of the spoliation – and the resulting sanctions – that occurred in both the DuPont and Northington cases.

The automated functions of archiving technology can benefit a company’s litigation response in other ways.  For example, such a tool may limit the amount of potentially relevant information available for follow-on litigation.  Absent a legal hold, retention rules that are programmed into the software will ensure that ESI is expired once it reaches the end of a designated period.  In DuPont, such a feature could arguably have eliminated entire categories of older documents before a duty to preserve those materials ever ripened.  This facet not only has the potential to reduce legal exposure, but also the attendant costs associated with reviewing those documents in litigation.

DuPont, Northington and other cases from the recent past delineate the steps companies can take to address the challenges of eDiscovery.  Organizations do not have to “repeat” past mistakes that victimized clients and counsel alike.  Instead, they can implement the right technology tools as part of a thoughtful, proactive approach to litigation.  By so doing, organizations will avoid Santayana’s judgment by “remembering” the lessons of eDiscovery history.

In my last post I announced that discussions are taking place that could change the way preservation and sanctions issues are handled within the federal court system.  The next round of discussions about possible amendments to the Federal Rules of Civil Procedure (FRCP) is scheduled to take place on September 9th in Dallas, Texas as part of a “mini-conference” led by the Discovery Subcommittee – a committee appointed by the Advisory Committee on Civil Rules.  This post discusses three different rule amendment approaches that attendees have been asked to consider in order to help them prepare for the mini-conference.  A complete list of attendees, preparation materials, and questions the group will consider are included in the Advisory Committee’s June 29, 2011 memorandum to the participants.

The debate about whether or not rule amendments are even required is far from over.  A 452-page document located on the U.S. Courts’ website chronicles many of the meetings, notes, and submissions driving the current discussion.  Page 265 of the document contains a memorandum prepared by the Civil Rules Advisory Committee earlier this year, stating that:

“the Subcommittee has reached no conclusion on whether rule amendments would be a productive way of dealing with preservation/sanctions concerns, much less what amendment proposals would be useful.”

Despite concerns that amending the current rules now would amount to jumping the gun, there is an undeniable desire for more clarity around when the duty to preserve electronically stored information (ESI) is triggered, what must be preserved, and when the duty expires.  This momentum has resulted in the crafting of draft proposals that are likely to help frame the discussion on September 9th. The “proposals” are really draft approaches that have been broken down into three general categories described in the Civil Rules Advisory Committee’s memorandum, titled: “PRESERVATION/SANCTIONS ISSUES” (see page 263).  The Category 1 approach can best be described as providing a higher degree of specificity than the other approaches.  For example, the Category 1 approach provides a fairly detailed explanation of the duty to preserve evidence (Rule 26.1(a)) and details possible triggers (26.1(b)), the scope of the duty to preserve (26.1(c)), and sanctions (Rule 37).  Category 2 proposes a more general preservation rule, while Category 3 only addresses sanctions as a tool for influencing behavior.  The three categories are discussed in more detail below.

Category 1: Specific Rule

This draft includes many different exemplary lists, alternative approaches, and footnotes that highlight the fact that one of the key challenges with drafting a specific rule is trying to foresee all of the challenges that might lie in the road ahead.  For example, the draft rule provides a long list of events that could trigger the duty to preserve evidence, including everything from serving a pleading to taking “any other action” in anticipation of litigation.   The rule also provides a list of information types that are “presumptively excluded” from the preservation duty, such as deleted data on hard drives, temporary internet files, and physically damaged media.

The lists are helpful in that they provide guidance.  However, each list also includes a “catch-all” provision to address scenarios that might not be foreseeable.  The inclusion of catch-all provisions highlights the inherent challenge of providing more clarity and certainty without creating rules that are so inflexible that they are difficult to apply to unforeseen factual scenarios or technological developments.  Some might argue that trying to provide a laundry list of examples will make passage of new rules difficult because each item on the list will stir debate.  Others contend that the lists add little value because the catch-all provisions will still require litigators to pass the sniff test of “reasonableness.”

Despite the inherent challenges related to drafting rules with specificity, most practitioners would likely support the inclusion of lists or examples that provide at least some direction.  What is likely to be far more controversial with respect to Category 1 is the use of alternative language proposing fixed limits around custodians and litigation holds.  For example, one alternative would limit data preservation requirements to a fixed number of custodians and the duty to preserve evidence would similarly expire after a fixed number of years.  Bright line rules like these may be easier to understand, but they also tend to be controversial since they lack the flexibility necessary to fairly address every conceivable situation.

Category 2: General Rule

Like the Category 1 proposal, the Category 2 proposal uses lists and outlines several alternative approaches throughout the rule.  However, the Category 2 proposal fundamentally differs from Category 1 by outlining a more general approach.  For example, one of the alternatives essentially states that the duty to preserve evidence is triggered whenever a “reasonable person” would expect to be a party to an action.  Similarly, the ongoing duty to preserve information after the duty has been triggered would be evaluated based on what is described as a “reasonable period” under the circumstances.

The beauty of this more general approach lies in its simplicity and flexibility.  The idea is that evaluating conduct based on the “reasonableness” of a person’s actions is much easier than attempting to draft bright line legal guidelines that account for every possible factual scenario.  The flip side is that reasonable minds could differ and results could be inconsistent if there are no bright line rules.  What this means in the context of the federal rule discussion is that one judge might find a party’s conduct with respect to data preservation efforts reasonable, while another judge might issue sanctions based on the same set of facts.  In large part, it is this lack of certainty and guidance in the current rules that sparked the current debate in the first place.

Category 3: Sanctions-Based Rule

Unlike the first two categories, the Category 3 approach focuses only on sanctions and would act like more of a “back-end” rule.  In other words, the rule would not contain any specific directives about preservation, but it would provide direction in the areas of when and how sanctions might be applied.

Despite the draconian image a “sanctions” based rule might conjure up, the Category 3 rule may seem surprisingly lenient to some.  For example, absent extraordinary circumstances, the court would be prohibited from imposing any of the sanctions listed in Rule 37(b)(2) or from giving an adverse-inference instruction unless:

“the party’s failure to preserve discoverable information was willful or in bad faith and caused [substantial] prejudice in the litigation.”

The sanctions based approach would almost certainly have an impact on how parties handle upstream preservation related issues.  However, the key ingredients that will impact what kind of behavior this rule drives are the severity of the threatened sanction as well as the applicable standard.  For example, a party facing severe sanctions for conduct that is either negligent, willful or in bad faith is likely to take their preservation obligations seriously.  On the other hand, if the realm of possible sanctions is trivial, parties are less likely to take their preservation related obligations seriously.

Conclusion

The three rule approaches represent very early attempts at framing possible approaches to amending the FRCP.  If the Discovery Subcommittee chooses to recommend rule amendments following the September 9th mini-conference in Dallas, the proposed language is likely to be closer to final form and easier to assess than the current proposals.  I will continue to monitor the rule making discussion and provide commentary in future posts.  Stay tuned for my next post where former US Magistrate Judge Ron Hedges explains why he thinks the rule changes are unnecessary and why the current proposals might run afoul of the Rules Enabling Act.