ELECTRONIC DISCOVERY

CAROLYN BROSTAD SOUTHERLAND Baker Botts L.L.P.

Houston, Texas carolyn.southerland@bakerbotts.com

State Bar of Texas 15TH ANNUAL ADVANCED EMPLOYMENT LAW COURSE

February 1 - 2, 2007 Dallas

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Austin Dallas HoustonHong KongDubai London Moscow New York Riyadh Washington

C A R O L Y N S O U T H E R L A N D Special Counsel, Litigation One Shell Plaza, 910 Louisiana Houston, TX 77002-4995 United States of America Phone: 713.229.1434 Fax: 713.229.2834 carolyn.southerland@bakerbotts.com

Education and Honors

J.D. (cum laude), University of Houston Law Center, 1986 Order of the Coif Legal Developments Editor, Houston Law Review Order of the Barons Phi Delta Phi B.A., German, The University of Texas, 1983 Admissions and Affiliations

State Bar of Texas United States District Courts for the Southern and Eastern Districts of Texas American Bar Association Houston Bar Association

Concentration

Commercial litigation; electronic discovery Summary

Carolyn Southerland primarily handles complex commercial litigation in such areas as contract disputes, patent infringement, professional malpractice, and energy-related matters. In recent years, her focus in these cases has revolved around the collection, review, and production of large volumes of electronic data. Ms. Southerland has extensive experience in developing processes and strategies for gathering electronic data, structuring online databases, and managing the review of electronic information. She has also negotiated with regulators and litigants regarding the production requirements of electronic data and contributed to several case management orders on the parameters of electronic production. Ms. Southerland is a frequent speaker and author on the legal issues involved in electronic discovery. She is a member of the Sedona Working Group 1, special project team member on legal holds and search and retrieval sciences, and a scheduled attendee of the 2006 Sedona mid-year meeting. She also participated in the Electronic Discovery Reference Model Project as leader of the preservation node. In the commercial litigation sphere, Ms. Southerland has represented a wide variety of clients in Texas state courts and in federal courts across the country in claims involving a range of business issues, from breach of contract, breach of fiduciary duty, fraud, and conspiracy, to misrepresentation in the banking, oil and gas, and plastics industries.

Representative Engagements

Plastics manufacturer – breach of contract, fraud, and

breach of fiduciary duty claims by a former joint venture

CAROLYN SOUTHERLAND

Austin Dallas HoustonHong KongDubai London Moscow New York Riyadh Washington

partner Major oil company – patent infringement/validity suit Energy clients – various suits related to trading power and

natural gas Law firm – legal malpractice action SEC investigations Responding to Department of Justice second requests FERC investigations

Publications, Speeches, and Presentations

Publications

"Ignorance of IT Minutiae No Excuse for Litigators," National Law Journal, July 17, 2006

"Reducing the Volume of Electronic Data," The E-Discovery Standard, Fall 2005

"Best Practices: Top Ten Considerations When Negotiating an E-Discovery Case Management Order," Digital Discovery & e-Evidence, October 2005

"Best Practices: E-Discovery 'Dream Teams,'" Digital Discovery & e-Evidence, July 2005

"Business Survival Guide: Rule Changes May Help Unload the 'Weapons of Mass Discovery,'" Houston Business Journal, May 2005

Speeches and Presentations

"Lessons Learned: How to Present a Winning Case When It Comes to Electronic Discovery," IQPC Conference, Toronto, May 2006

"Recent Developments in Electronic Discovery," Houston Bar Association, Houston Bar Association, Corporate Counsel Section, Houston, February 2006, and Labor and Employment Section, March 2006

"In the Wake of Zubulake," Thomson West E-Discovery Conferences, Chicago, San Francisco, and New York, Fall 2005

"Electronic Discovery: Case Law Update and Tips for Planning and Preparing for the E-Discovery Onslaught," Texas General Counsel Forum, Houston, July 2005 (with Rich Seleznov of Huron Consulting)

"Scope of the Duty to Preserve After Zubulake," Association of Corporate Counsel, Houston, May 2005

"Recent Developments in Electronic Discovery," Advanced Civil Discovery, University of Houston Law Foundation, Dallas, Houston, and San Antonio, March, April, and December 2005

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ELECTRONIC DISCOVERY1

The use of electronic information has become so prevalent in corporate America (and in our personal lives), discovery and use of that information in litigation or government investigations is inevitable. It is estimated that 99% of all information generated today is created and stored electronically.2 In 1998, approximately 47 million e–mail users in the United States sent an estimated 500 million e–mail messages per day.3 By 2003, the number of e–mail users doubled to as many as 105 million in the United States and the number of e–mail messages they sent tripled to over 1.5 billion a day--totaling more than 547.5 billion e–mail messages per year.4 As far back as the year 2000, 70% of corporate records were stored in electronic or digital format,5 and 30% of those records were never printed in paper.6

2006 saw more e-discovery-related legal opinions than in any prior year.7 Over 175 opinions issued on various e-discovery matters, ranging from spoliation to costs, with the major focus on discovery requests, motions to compel and sanctions for spoliation.8 Courts inquired in a more in-depth fashion on issues such as legal holds and methodologies for searches in numbers not previously seen.9 With the implementation of e-discovery-specific amendments to the Federal Rules of Civil Procedure, and the implementation of a variety of state rules relating to electronically-stored information, the number of cases addressing these issues is likely to continue to grow.

Electronic information does not just mean e–mail but all electronic documents and data. This includes e–mail, instant messages, voice mail, fax logs, word processing files, electronic spreadsheets (Excel files), presentations (PowerPoint files), databases, Web pages, pdf files, jpeg files, graphics, metadata (electronic data about a file or document, such as author, date created, date last modified, etc.) and all other files and data that exist in electronic form or can reside in a computer.10 Likewise, computer hard drives are not the only source of electronic files. Electronic information is found and stored on floppy disks, CDs, DVDs, external hard drives, zip drives, backup tapes and a host of other types of media. In addition, many electronic devices we use on a daily basis contain electronic files and data that can be the subject of discovery, such as printers, fax machines, cell phones, iPods and PDAs (personal digital assistants).

All of these sources of electronic data have been and will continue to be targets for discovery in litigation.

Texas’s Electronic Discovery Rule -- Texas Rule of Civil Procedure 196.4

In Texas, a party seeking discovery of data or information in electronic form must (1) specifically request production of electronic data and (2) specify the form in which it wants it produced. The responding party must produce electronic data responsive to the request which is reasonably available to it in its ordinary course of business. If the responsive party cannot, through reasonable efforts, retrieve the data or information requested or produce the data in the form specified by the requesting party, then he must object in accordance with the rules. If the court

1 The author would like to thank Soña Ramirez, David Arlington and Gail Foster, all of whom contributed to this paper. 2 David K. Isom, Electronic Discovery Primer for Judges, FED. CTS. L. REV. 1, 1 & n.1 (2005). 3 The Sedona Conference, THE SEDONA PRINCIPLES: BEST PRACTICES, RECOMMENDATIONS PRINCIPLES FOR ADDRESSING ELECTRONIC DOCUMENT PRODUCTION (July 2005), available at http://www.thesedonaconference.org. These guidelines will be referred to throughout as the “Sedona Principles” and are set forth in Appendix A attached hereto. 4Id. 5 Lori Enos, Digital Data Changing Legal Landscape, E-COMMERCE TIMES (5/16/00). 6 Richard L. Marcus, Confronting the Future: Coping with Discovery of Electronic Material, 64 LAW & CONTEMP. PROBS. 253, 280-81 (Spring/Summer 2001). 7 Pike & Fischer (soon to be BNA) Digital Discovery and E-Evidence, Vol. 7, No. 1 “2006 Year in Review: E-Discovery’s Biggest Developments” Michele S. Lange, Esq. 8 Id. 9 Id. 10 For an extensive discussion about metadata and its relevance and production in litigation, see Williams v. Sprint/United Management Co., 2005 WL 2401626 (D. Kan.) (Sept. 29, 2005).

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orders the responding party to comply with the request, the court must also order the requesting party to pay reasonable expenses of any extraordinary steps required to retrieve and produce the data or information.11

Much like the December 2006 federal rules amendments, Rule 196.4 calls on the responding party to make “reasonable efforts” to produce data “reasonably available” to it in the ordinary course of business, and to produce data in “reasonably usable form.”12 It is anticipated that the issue of reasonableness, coupled with that of cost shifting, will be at the heart of electronic discovery disputes coming before Texas courts over the next several years. This is because, notwithstanding the fact that this rule has been in effect since January 1999, there is a dearth of case law on Rule 196.4, and virtually no case law directly addressing the reasonableness or cost-shifting provisions of the rule. For instance, in the only reported case located relating to Rule 196.4,13 the Court of Appeals merely addressed in a footnote the requirement of Rule 196.4 that the party seeking discovery must specifically request electronic data.14

In a recent case, In re BP Products North America, Inc.,15 the Court of Appeals denied, without discussion, BP’s petition for writ of mandamus complaining of the trial court’s order requiring BP to produce certain electronic data. Although not addressed in the Court of Appeals’ opinion, the trial court’s order requiring production of the data also required BP to “bear its own cost of production,” based on the court’s bare statement that, “the factual predicates for cost shifting under Rule 196.4 hav[e] not been satisfied.” Unfortunately, the court’s opinion provided no insight as to the factual predicates that must be established, nor the type of proof necessary, to trigger the mandatory cost-shifting provision of Rule 196.4.

Although not predicated on the Rule 196.4 provisions, some guidance on the cost-shifting issue may be found in BASF v. Zachry Co.,16 where the trial court awarded a nonparty its costs for producing documents, including electronic data, but denied its request for reimbursement of its attorneys’ fees incurred in producing the materials. The Court of Appeals affirmed, agreeing with the trial court that an award of attorneys’ fees as costs of production was not expressly authorized under Rule 205.3(f) or 176.7, as BASF had argued.17 Given that there is no express authorization for payment of attorneys’ fees under Rule 196.4, the same reasoning should apply to preclude an award of fees as “reasonable expenses” under this rule.

Recent Developments

Prior to 2003, cases addressing issues of electronic discovery were relatively few and far between. Over the last three years, however, the issue of e-discovery has come up with more frequency, and a number of federal courts have taken the opportunity to set forth guidelines for how electronic discovery will be handled.18

An Advisory Committee on the Federal Rules of Civil Procedure was created to establish uniform guidance in this area and, in August 2004, published its proposed rule amendments addressing electronic discovery.19 The committee held hearings and received public comment on the proposed changes, and promulgated revised draft rules

11 TEX. R. CIV. P. 196.4. 12 TEX. R. CIV. P. 196.4 at cmt. 3. 13 In re Lowe’s Cos., Inc., 134 S.W.3d 876 (Tex. App.--Houston [14th Dist.] 2004, no pet.). 14 Id. at n.7. 15 In re BP Prods., N. Am, Inc., No. 01-06-00198-CV, 2006 WL 648816, at *1 (Tex. App.--Houston [1st Dist.] March 13, 2006). 16 BASF Fina Petrochems. LP v. H. B. Zachry Co., 168 S.W.3d 867 (Tex. App.--Houston [1st Dist.] 2004, pet. denied). 17 Id. at 873-75. 18 See, e.g., Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 220 n. 47 (S.D.N.Y. 2003) (“Litigants are now on notice, at least in this Court, that backup tapes that can be identified as storing information created by or for ‘key players’ must be preserved.”). 19 Report of the Civil Rules Advisory Committee, Proposed Amendments Involving Electronic Discovery (Aug. 2004).

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in May 2005.20 The revised rules were approved by unanimous consent of the full Judicial Conference of the United States in September of this year and became effective December 1, 2006.21

Practitioners’ groups have also weighed in on the issue. In March 2003, The Sedona Conference Working Group on Electronic Document Production published a draft version of its Best Practices, Recommendations and Principles for Addressing Document Production. After soliciting public comment, The Sedona Conference published a revised version of its guidelines in January 2004, which was updated in July 2005.22 Similarly, in August 2004, the American Bar Association adopted and published amendments to its Civil Discovery Standards that extensively address issues relating to electronic discovery.23 Finally, the Conference of Chief Justices established a working group to develop “a reference document to assist state courts in considering issues related to electronic discovery.”24 The Guidelines were approved in August 2006.25

Limits on Electronic Discovery -- Federal Precedent

The premise that ESI is discoverable does not compel the conclusion that all electronic data is discoverable all the time. Rule 26(b) generally allows parties to “obtain discovery regarding any matter, not privileged, that is relevant to the claim or defense of any party” and for “good cause, the court may order discovery of any matter relevant to the subject matter involved in the action.”26 Regardless of the type or form of discovery, however, courts can limit the “frequency or extent of use of the discovery methods otherwise permitted” by the rules if it is found that:

(i) the discovery sought is unreasonably cumulative, or is obtainable from some other source that is more convenient, less burdensome, or less expensive; (ii) the party seeking discovery has had ample opportunity by discovery in the action to obtain the information sought; or (iii) the burden or expense of the proposed discovery outweighs its likely benefit, taking into account the needs of the case, the amount in controversy, the parties’ resources, the importance of the issues at stake in the litigation, and the importance of the proposed discovery in resolving the issues.27

Similarly, Rule 26(c) allows courts, for good cause shown, to “make any order which justice requires to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense . . . .”28

The Sedona Principles highlight the unique characteristics of electronic data, grouping them into six broad categories: (1) volume and duplicability (there is more of it and it is easy to duplicate); (2) persistence (electronic documents are more difficult to dispose of than paper documents); (3) dynamic, changeable content (electronic data is easy to change, even without human involvement); (4) metadata (information about a document or file of which the user may be unaware); (5) environment-dependence and obsolescence (electronic data, unlike paper data, may be incomprehensible when separated from its computer environment, making it difficult to read data created by out-of-

20 Report of the Civil Rules Advisory Committee (May 27, 2005). 21 www.uscourts.gov/Federal Rulemaking. 22 Sedona Principles (Jan. 2004); Sedona Principles (July 2005). 23 See ABA CIVIL DISCOVERY STANDARDS (2004), available at http://www.abanet.org/litigation/taskforces/electronic/home.html. 24 Conference of Chief Justices Guidelines for State Trial Courts Regarding Discovery of Electronically-Stored Information at vii. 25 Id. 26 FED. R. CIV. P. 26(b)(1) (emphasis added). 27 FED. R. CIV. P. 26(b)(2). 28 FED. R. CIV. P. 26(c); see also Multitechnology Servs., L.P. v. Verizon Southwest, No. 4:02-CV-702-Y, 2004 WL 1553480 (N.D. Tex. July 12, 2004) (under R. 26, court can order cost-sharing in order to alleviate burden of searching databases to respond to interrogatory; costs of responding also classified as “court costs” recoverable by the prevailing party).

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date technology); and (6) dispersion and searchability (identical computer data can be located in many different source files, but automated search capability may counterbalance this problem).29

Considering these unique characteristics of electronic data, The Sedona Conference Working Group on Electronic Document Production considered what to do with the body of case law applying discovery rules in the context of paper discovery. Relying on precedent relating to paper documents where appropriate, but adjusting application of the rules to accommodate the unique characteristics of electronic information where necessary, The Working Group attempted to “translate” the “media neutral” rules of discovery and apply them in a context-specific way to electronic data. The product of this effort is contained in the 14 Sedona Principles.30

The Sedona Principles for Electronic Document Production

The Sedona Principles embody many of the concepts that were ultimately included in the 2006 Federal Rules Amendments, including the recommendation that parties meet and confer early to agree on preservation and production issues associated with ESI.31 The fourteen Sedona Principles are:

1. Electronic data and documents are potentially discoverable under Fed. R. Civ. P. 34 or its state law equivalents. Organizations must properly preserve electronic data and documents that can reasonably be anticipated to be relevant to litigation.

2. When balancing the cost, burden, and need for electronic data and documents, courts and parties should apply the balancing standard embodied in Fed. R. Civ. P. 26(b)(2) and its state law equivalents, which require considering the technological feasibility and realistic costs of preserving, retrieving, producing, and reviewing electronic data, as well as the nature of the litigation and the amount in controversy.

3. Parties should confer early in discovery regarding the preservation and production of electronic data and documents when these matters are at issue in the litigation, and seek to agree on the scope of each party’s rights and responsibilities.

4. Discovery requests should make as clear as possible what electronic documents and data are being asked for, while responses and objections to discovery should disclose the scope and limits of what is being produced.

5. The obligation to preserve electronic data and documents requires reasonable and good faith efforts to retain information that may be relevant to pending or threatened litigation. However, it is unreasonable to expect parties to take every conceivable step to preserve all potentially relevant data.

6. Responding parties are best situated to evaluate the procedures, methodologies, and technologies appropriate for preserving and producing their own electronic data and documents.

7. The requesting party has the burden on a motion to compel to show that the responding party’s steps to preserve and produce relevant electronic data and documents were inadequate.

8. The primary source of electronic data and documents for production should be active data and information purposely stored in a manner that anticipates future business use and permits efficient searching and retrieval. Resort to disaster recovery backup tapes and other sources of data and documents requires the requesting party to emonstrate need and relevance that outweigh the cost, burden, and disruption of retrieving and processing the data from such sources.

9. Absent a showing of special need and relevance a responding party should not be required to preserve, review, or produce deleted, shadowed, fragmented, or residual data or documents.

29 Sedona Principles at 3-5. 30 Sedona Principles at 7-9. 31 Sedona Principle 3.

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10. A responding party should follow reasonable procedures to protect privileges and objections to production of electronic data and documents.

11. A responding party may satisfy its good faith obligation to preserve and produce potentially responsive electronic data and documents by using electronic tools and processes, such as data sampling, searching, or the use of selection criteria, to identify data most likely to contain responsive information.

12. Unless it is material to resolving the dispute, there is no obligation to preserve and produce metadata absent agreement of the parties or order of the court.

13. Absent a specific objection, agreement of the parties or order of the court, the reasonable costs of retrieving and reviewing electronic information for production should be borne by the responding party, unless the information sought is not reasonably available to the responding party in the ordinary course of business. If the data or formatting of the information sought is not reasonably available to the responding party in the ordinary course of business, then, absent special circumstances, the costs of retrieving and reviewing such electronic information should be shifted to the requesting party.

14. Sanctions, including spoliation findings, should only be considered by the court if, upon a showing of a clear duty to preserve, the court finds that there was an intentional or reckless failure to preserve and produce relevant electronic data and that there is a reasonable probability that the loss of the evidence has materially prejudiced the adverse party.32

Sampling

Many courts have taken a “sampling” approach when dealing with a party’s request for massive amounts of electronic evidence. In McPeek v. Ashcroft,33 an employee sued the Department of Justice (DOJ) claiming he was retaliated against for having accused his supervisor of sexual harassment. The plaintiff asked the court “to force [the] DOJ to search its backup systems since they might yield … data that was ultimately deleted by the user but was stored on the backup tape and remains there today.”34 The DOJ argued that “the remote possibility that such a search will yield relevant evidence cannot possibly justify the costs involved[,]”35 which were substantial in part because each backup tape would have to be “restored.”36 Recognizing that backup tapes store information randomly and that their purpose is for disaster recovery, the court noted that there is “no controlling authority for the proposition that restoring all backup tapes is necessary in every case.”37 Instead, the court ordered a “test run” restoration of a sampling of e–mail backup tapes and directed the DOJ to document in a sworn certification the time and money spent in doing the restoration and search.38 The court said it would then permit the parties an opportunity to “argue why the results and the expense do or do not justify any further search.”39 In its follow-up ruling after the sampling was conducted, the court ruled that, based on the information yielded from the original restoration, it would only require restoration of one additional backup tape.40

32 The Sedona Principles: Best Practices Recommendations & Principles for Addressing Electronic Document Production, available at www.TheSedonaConference.org. 33 202 F.R.D. 31 (D.D.C. 2001). 34 McPeek, 202 F.R.D. at 32. 35 Id. 36 Id. 37 Id. at 32-33. 38 Id. at 34-35. 39 Id. 40 McPeek v. Ashcroft, 212 F.R.D. 33, 37 (D.D.C. 2003); see also Hagemeyer N. Am., Inc. v. Gateway Data Scis. Corp., 222 F.R.D. 594, 603 (E.D. Wis. 2004) (court ordered defendant to restore three sample backup tapes and required parties to make additional submission on the benefits and burdens of the proposed discovery).

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Duty to Preserve

One of the most important—if not the most important—aspects of electronic discovery for all involved is the duty to preserve electronic data. While it is relatively easy, once paper documents are located, to secure them and make sure they are not physically destroyed or thrown away, this is not the case with electronic information. Preserving electronic data is particularly challenging because it is often difficult to ascertain what information exists, much less figure out how to prevent it from being altered or destroyed. Further, electronic data is relatively easy to change, and information can be altered or destroyed just through routine operation of a computer system. Everyone, from lawyers to business people and their IT professionals and staff, should understand not only the duty to preserve electronic information but also the consequences for failure to do so.

An understanding of the parameters of the duty to preserve electronic information involves two inquiries: “when does the duty to preserve attach; and what evidence must be preserved?”41 The answer to the first question is likely what you would expect based on the duty to preserve all other types of evidence.42 The answer to the second question, however, is not nearly so clear and is still evolving.

When does the duty arise? The leading case on this issue in the e-discovery context is Zubulake v. UBS Warburg LLC. Plaintiff Zubulake was a former broker who sued her employer, UBS Warburg LLC (“UBS”) for gender discrimination and retaliation after she was terminated from her job shortly after filing an EEOC complaint.43 To support her claims, Zubulake sought discovery of UBS employees’ e–mails that she contended were located mainly on backup tapes.44 In response, UBS produced approximately 350 pages of documents, which included 100 pages of e–mail, and objected to many of the other requests.45 UBS did not search any of its backup tapes for potentially responsive e–mail and instead opposed the discovery request because the restoration costs were prohibitive—estimated initially at $300,000.46

In Zubulake IV, Judge Scheindlin described when the duty to preserve evidence arises as follows:

The obligation to preserve evidence arises when the party has notice that the evidence is relevant to litigation or when a party should have known that the evidence may be relevant to future litigation.’47

Thus, if you are involved in litigation, you must preserve all relevant evidence. As has always been the case, however, the difficulty comes when trying to determine when someone reasonably anticipated, or should have anticipated, future litigation. This was one of many issues addressed by Judge Scheindlin in Zubulake.

The court began its analysis by holding that “the duty to preserve evidence arose, at the latest, on August 16, 2001, when Zubulake filed her EEOC charge.”48 Indeed, both UBS’s in-house lawyers and outside counsel began

41 Judge Scheindlin wrote a series of opinions in this employment discrimination case which have become the most-cited and relied-upon e-discovery case authority. The opinions include Zubulake v. UBS Warburg LLC, 217 F.R.D. 309 (S.D.N.Y. 2003) (Zubulake I); Zubulake v. UBS Warburg LLC, 216 F.R.D. 280 (S.D.N.Y. 2003) (Zubulake III); Zubulake v. UBS Warburg LLC (“Zubulake IV”), 220 F.R.D. 212, 216 (S.D.N.Y. 2003); Zubulake v. USB Warburg LLC, 2004 WL 1620866 (July 20, 2004) (“Zubulake V). 42 See Sedona Principles at 23 (“The first inquiry remains unchanged in the world of electronic data and documents . . ..”). 43 Zubulake I, 217 F.R.D. at 312. 44 Id. at 311-12. 45 Id. at 312-13. 46 Id. at 313. 47 220 F.R.D. at 216 (quoting Fujitsu Ltd. v. Fed. Express Corp., 247 F.3d 423, 436 (2nd Cir. 2001)); see also Silvestri v. Gen. Motors Corp., 271 F.3d 583, 591 (4th Cir. 2001) (“The duty to preserve material evidence arises not only during litigation but also extends to that period before the litigation when a party reasonably should know that the evidence may be relevant to anticipated litigation”). 48 Zubulake IV, at 216 (emphasis added).

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cautioning employees immediately thereafter to preserve all documents, including e–mails and backup tapes, that could potentially be relevant to the litigation.49

Judge Scheindlin noted, however, that the duty to preserve may have arisen even before the EEOC charge was filed and went on to analyze the issue further. Zubulake relied on two pieces of evidence to support her claim that “UBS ‘should have known that the evidence [was] relevant to future litigation,’ [footnote omitted] as early as April 2001.”50 First, some UBS employees sent e–mails in April 2001 regarding Zubulake and titled them “UBS Attorney Client Privilege” even though no attorney was copied on the e–mail and the discussion was not legal in nature. Second, Zubulake’s own supervisor testified that he feared litigation as early as April 2001.51

Judge Scheindlin noted that “[m]erely because one or two employees contemplate the possibility that a fellow employee might sue does not generally impose a firm-wide duty to preserve.”52 She concluded, however, that almost everyone associated with Zubulake recognized the possibility that she might sue.53 In holding that the duty to preserve attached in April 2001, she relied on the evidence discussed above and particularly mentioned an e–mail written in April 2001 essentially calling for Zubulake’s termination and labeled as “UBS attorney client privilege.”54

Scope of the duty to preserve -- do you have to save everything? Many of you have probably seen a letter from counsel that begins:

Please be advised that [potential plaintiff] believes electronically stored information to be an important and irreplaceable source of discovery and/or evidence in a [soon to be filed] litigation matter. Due to its format, electronic data is easily deleted, modified or corrupted. Accordingly, [potential defendant] must take every reasonable step to preserve this information until the final resolution of this matter. This includes, but is not limited to, an obligation to discontinue all data destruction and backup tape recycling policies.

These “data preservation” letters usually continue to list page after page of steps that must be taken to preserve electronic data, which, if followed, would basically require an organization to suspend operation of its computer systems altogether.

Does the duty to preserve electronic evidence mean a “corporation, upon recognizing the threat of litigation, [must] preserve every shred of paper, every e–mail or electronic document, and every backup tape?”55 Judge Scheindlin in Zubulake IV says the answer is clearly “no.”56 To rule otherwise, “would cripple large corporations . . . that are almost always involved in litigation.”57 This is also the consensus of many practitioners. For example, the Sedona Principles cite the Zubulake IV opinion with approval and go on to state that “a reasonable balance must be struck between (1) an organization’s duty to preserve relevant data, and (2) an organization’s need, in good faith, to continue operations.”58 Additionally, “[t]he obligation to preserve relevant evidence is generally understood to require that the producing party make reasonable efforts to identify and manage the relevant information readily available to it.”59

49 Id. 50 Id. 51 Id. at 216-17. 52 Id. at 217. 53 Id. 54 Id. 55 Zubulake IV, 220 F.R.D. at 217. 56 Id. 57 Id. 58 Sedona Principles at 20. 59 Id.

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How can this be translated to practical guidelines? Judge Scheindlin began her analysis of this question in Zubulake IV by stating:

[A]nyone who anticipates being a party or is a party to a lawsuit must not destroy unique, relevant evidence that might be useful to an adversary. While a litigant is under no duty to keep or retain every document in its possession . . . it is under a duty to preserve what it knows, or reasonably should know, is relevant in the action, is reasonably calculated to lead to the discovery of admissible evidence, is reasonably likely to be requested during discovery and/or is the subject of a pending discovery request.60

To understand how Judge Scheindlin translated this into practical steps or guidelines, a background of the particular discovery dispute at issue in Zubulake IV is helpful. The backup tape restoration effort started in Zubulake I and III led to the preservation issues of Zubulake IV and V. The basis of the dispute was that the parties had discovered during the restoration process that there were several missing backup tapes containing e–mail of several key witnesses (including Zubulake’s supervisor, her supervisor’s supervisor, two of Zubulake’s coworkers, and a human resources employee involved in Zubulake’s termination) and certain isolated e–mails that had been deleted after Zubulake filed her EEOC charge.61 Consequently, Zubulake sought sanctions against UBS for spoliation of the evidence because it failed to preserve the missing backup tapes and deleted e–mails.62 Specifically, Zubulake sought (1) an order that UBS should be required to pay the full costs of restoring the remaining tapes; (2) an adverse inference instruction against UBS related to the missing backup tapes; and (3) an order that UBS bear the cost of re-deposing certain individuals.63

Whose documents must be retained? Judge Scheindlin held that “the duty to preserve extends to those employees likely to have relevant information,” i.e., the key players in the case. Thus the duty extends to all documents and tangible things made by or for the key players and includes not only documents that the disclosing party may use to support its claims or defenses, but also information relevant to the claims or defenses of any party or which is relevant to the subject matter involved in the action.64 The court noted that all of the people whose backup tapes were lost in Zubulake were in fact key players.65

What must be retained? Judge Scheindlin then held that “a party must retain all relevant documents (but not multiple identical copies) in existence at the time the duty to preserve attaches, and any relevant documents thereafter.”66 The court notes that there are many ways to manage electronic data and that litigants are free to choose how this task is accomplished, but offered the following as an example:

For example, a litigant could choose to retain all then-existing backup tapes for the relevant personnel (if such tapes store data by individual or the contents can be identified in good faith and through reasonable effort), and to catalog any later-created documents in a separate electronic file. That, along with a mirror-image of the computer system taken at the time the duty to preserve attaches (to preserve documents in the state they existed at that time), creates a complete set of relevant documents. Presumably there are a multitude of other ways to achieve the same result.67

Summary of Preservation Obligations

How do you do it right? Judge Scheindlin summarized a party’s preservation obligations as follows:

60 220 F.R.D. at 217. 61 Id. at 215 62 Id. 63 Id. at 215-16. 64 Id. at 217-18. 65 Id. at 218. 66 Id. 67 Id.

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Once a party reasonably anticipates litigation, it must suspend its routine document retention/destruction policy and put in place a “litigation hold” to ensure the preservation of relevant documents. As a general rule, that litigation hold does not apply to inaccessible backup tapes (e.g., those typically maintained solely for the purpose of disaster recovery), which may continue to be recycled on the schedule set forth in the company’s policy. On the other hand, if backup tapes are accessible (i.e., actively used for information retrieval), then such tapes would likely be subject to the litigation hold.68

The court, however, created a significant exception to this general rule that almost swallows the rule entirely. If a company can identify where particular employee documents are stored on backup tapes, then the tapes storing the documents of “key players” should be preserved if the information is not otherwise available. This exception applies to all backup tapes. The court did not provide any guidance as to how much effort a company is required to expend to attempt to identify where certain employee documents are located on backup tapes.

In considering the plaintiff’s request for sanctions in Zubulake IV, Judge Scheindlin acknowledged UBS had orally instructed employees to retain all relevant documents and e–mails the same month that Zubulake filed her EEOC charge, and outside counsel instructed UBS’s IT personnel to stop recycling the backup tapes when Zubulake requested e–mails from those tapes a year later.69 Even though the duty to preserve arose four months earlier than when Zubulake filed her charge, the tapes should have been retained because UBS’s retention policy directed that monthly backup tapes were saved for three years.70 However, UBS employees did not comply with the directives.71 Considering Zubulake’s requested remedies, the court held that (1) it would not re-consider cost-shifting because at the time that issue was decided the court already considered this fact in its analysis; (2) Zubulake did not demonstrate that the lost evidence would have supported her discrimination claims, thus she was not entitled to an adverse inference instruction; and (3) UBS should pay the costs of re-deposing relevant witnesses because the e–mails UBS should have produced were destroyed.72

Zubulake V was the last of the opinions in the Zubulake saga regarding discovery that had then lasted over two years, and further addressed the steps that counsel should take to ensure that a party comply with its preservation obligation.73

In Zubulake V, plaintiff again moved to sanction UBS for failing to produce relevant information and for its belated production of the material.74 During the re-depositions required by Zubulake IV, the plaintiff learned of more deleted e–mails and about the existence of e–mails preserved on UBS’s active servers that were never produced before the depositions. Specifically, she presented evidence that some UBS key players had deleted relevant e–mails, some of which were later recovered from backup tapes and produced late in the case and others that were lost altogether. She also showed that some UBS personnel did not produce other documents to her until almost two years after the commencement of litigation.

At the time Zubulake filed her EEOC charge, UBS’s in-house counsel gave immediate oral instructions to employees to preserve documents related to Zubulake’s claims; however, counsel failed to address information stored on the backup tapes.75 UBS’s outside counsel met with a number of key players in the litigation and reiterated in-house counsel’s hold, specifically with regard to their e–mail.76 In-house counsel later reduced the litigation hold

68 Id. 69 Id. at 215. 70 Id. at 219. 71 Id. 72 Id. at 220-22. 73 Zubulake v. UBS Warburg LLC, No. 02 Civ. 1243(SAS), 2004 WL 1620866, at *1 (S.D.N.Y July 20, 2004) (Zubulake V). 74 Id. 75 Id. at *2. 76 Id.

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instructions to writing and e–mailed it to all UBS employees.77 Finally, after outside counsel received a specific request from Zubulake for e–mails stored on backup tapes, they requested that UBS’s IT personnel stop recycling backup tapes.78 Zubulake, however, later discovered after she re-deposed certain individuals (as a result of court’s order in Zubulake IV) that, even with the litigation hold, some of them had deleted relevant e–mails that were recovered on backup tapes or lost altogether.79 One key witness testified that counsel instructed her to retain her files regarding Zubulake but never asked her to produce them.80 Another key witness testified that she had an “archive file” on her computer pertaining to Zubulake, but outside counsel never followed up with her regarding this archive.81

Reiterating the litigant’s preservation obligations promulgated in Zubulake IV, Judge Scheindlin stated in Zubulake V that once a litigation hold is in place, the party and counsel must ensure that “all sources of potentially relevant information are identified and placed on hold.”82 To accomplish this task, the court suggested that counsel become familiar with his client’s document retention policy by speaking with key IT personnel and communicating with key players as to their document management and retention habits.83 Further, the court stated that once a party and counsel have identified all potential sources of information, they have a duty to retain that information and make sure such information is not lost.84 Accordingly, the court listed steps that counsel should take to make sure that it complies with its obligation to preserve relevant electronic information:

1. Counsel must issue a litigation hold when litigation is reasonably anticipated. The hold should be periodically re-issued to keep it fresh in the minds of the employees, especially the key players.

2. Counsel should communicate directly with the key players and communicate the preservation duty clearly.

3. “Counsel should instruct all employees to produce electronic copies of their relevant active files.” Interview and question witnesses on their “document management habits.”

4. Counsel must make sure that all backup tapes which the party is required to retain are identified and stored in a safe place. This will require meeting with IT personnel and learning the system.85

In this respect, the court held that counsel failed to properly preserve evidence because they failed to communicate the litigation hold to all key players and failed to determine each player’s document retention habits. This resulted in lost evidence or evidence that was produced extremely late. Further, the court found that UBS employees ignored the instructions and deleted relevant e–mail.86 Thus, the court (1) entered an adverse inference instruction for e–mails deleted after Zubulake filed her EEOC charge; (2) ordered UBS pay costs for depositions or the re-depositions required by late production of electronic data; and (3) ordered UBS to restore and produce relevant documents related to one particular backup tape; and (4) ordered UBS to pay the costs of the motion.87 In April of

77 Id. 78 Id. 79 Id. 80 Id. at *5. 81 Id. 82 Id. at *8 (internal quotations omitted). 83 Id. 84 Id. at *9. 85 Id. 86 Id. at *12. However, the court goes on to comment that the deleted e–mail would not have been lost had counsel protected the relevant backup tapes. Id. 87 Id. at *13, 15.

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2005, the jury rendered a judgment against UBS for $9.1 million actual damages and $20.1 million in punitive damages.88 The parties settled the case in the Fall of 2005 for an undisclosed amount.

The Sedona Conference Working Group I is currently at work preparing commentary on the process for determining when litigation is reasonably anticipated and the implementation of legal holds.89 The group anticipates making a draft set of guidelines available for public comment on December 1 of this year.

Sanctions for Failure to Preserve Evidence90

Spoliation of Evidence

“Spoliation ‘is the destruction or significant alteration of evidence, or the failure to preserve property for another’s use as evidence in a pending or reasonably foreseeable litigation.’”91 Courts have wide latitude in ordering sanctions for failure to preserve evidence, i.e., spoliation of evidence. The determination of whether to assess a sanction for spoliation and the appropriate sanction is within the discretion of the trial judge and should be assessed on a case-by-case basis and the authority to award sanctions for spoliation arises jointly under the federal rules and the court’s inherent powers.92 The sanctions can range from fairly minor awards of costs or fees to an opposing party to a “death penalty” sanction such as dismissal of a complaint with prejudice or entry of a default judgment against a defendant.

Adverse inference instruction. Probably the most talked-about sanction is the spoliation or “adverse inference” instruction that many courts have issued when a party fails to preserve evidence. Specifically, the spoliation of evidence that is essential in proving “an issue at trial can support an inference that the evidence would have been unfavorable to the party responsible for its destruction.”93 Zubulake V addresses UBS’s failures to preserve and discusses the standard applicable to the determination of whether a spoliation inference instruction should be issued. The court stated as follows:

A party seeking an adverse inference instruction or other sanctions based on the spoliation of evidence must establish the following three elements: (1) that the party having control over the evidence has an obligation to preserve it at the time it was destroyed; (2) that the records were destroyed with a culpable state of mind; (3) the destroyed evidence was relevant to the party’s claim or defense such that a reasonable trier of fact could find that it would support that claim or defense.94

As the court explained, if a party intentionally or willfully destroys evidence, there is a presumption that the documents were relevant to the opposing party’s claims or defenses, and the latter two prongs are satisfied.95 However, where the party acts negligently or recklessly with regard to destroying the evidence, the party moving for sanctions has the additional burden to prove that the evidence was relevant.96

In applying the above standard to the facts, the court concluded that UBS had a duty to preserve certain e–mails from key players and that UBS acted willfully in destroying potentially relevant e–mails.97 In light of UBS’s

88 “UBS Ordered to Pay $29 Million in Sex Bias Lawsuit,” The New York Times, April 7, 2005. 89 www.TheSedonaConference.org/working group series/information. 90 See generally, Scheindlin and Wangkeo, Electronic Discovery Sanctions in the Twenty-First Century, 11 Mich. Telecomm. Tech L. Rev. 71 (2004). 91 Id. at *6. 92 Id. 93 Id. 94 Id. 95 Id. The court explained that relevance “encompasses not only the ordinary meaning of the term, but also that the destroyed evidence would have been favorable to the movant.” Id. 96 Id. 97 Id. at *12.

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willful spoliation, the court found that an adverse inference instruction with respect to the deleted e–mails was warranted.98 The court emphasized that this sanction (along with the other imposed sanctions) was imposed not only to punish and deter UBS from future misconduct, but to restore Zubulake to the position she would have been in had UBS engaged in good faith discovery.99

The court in MasterCard International, Inc. v. Moulton held that plaintiff was entitled to a similar adverse inference instruction where defendants failed to preserve e–mails for five months after plaintiff filed suit.100 In that case, MasterCard filed a trademark and infringement suit against defendant for maintaining a pornographic Web site that used MasterCard’s “priceless” trademark.101 Despite the fact that MasterCard sent a “data preservation letter” to defendant’s counsel, defendant failed to stop its data retention policy that would delete e–mails after twenty-one days, which resulted in lost e–mails.102 The court held that sanctions were warranted, but declined to make a conclusive determination that the public had been confused about whether plaintiff approved of the Web site and that the defendants’ actions had diminished and diluted the trademark.103 Instead, the court held that an adverse inference instruction was more appropriate.104

Awards of costs/fees. Courts also regularly award costs and attorneys’ fees where a party has destroyed electronic evidence. Many times, courts will impose costs and fees even where the moving party has failed to show the required culpable mental state or that the evidence would have been relevant to his or her underlying claims. For example, the court in Zubulake IV concluded UBS had destroyed e–mails that should have been produced to the plaintiff.105 Zubulake failed to show how the missing e–mails were relevant to her claims or that UBS maliciously deleted the e–mails.106 Thus, the court rejected an adverse inference instruction, but held that UBS should nevertheless pay for Zubulake’s costs to re-depose certain key witnesses to inquire about the issues raised by the destruction of the e–mails and any newly discovered e–mails.107

Other courts may award costs and fees where another sanction would be too harsh a remedy. In Kucala Enterprises, Ltd. v. Auto Wax Co., the U.S. magistrate judge recommended that the case be dismissed with prejudice and costs and fees be awarded to defendant where plaintiff had used a disk-wiping software called “Evidence Eliminator” to clean thousands of files before defendant inspected his computer.108 The district court judge acknowledged that “dismissal and default are ultimate sanctions to be avoided if a lesser sanction will suffice.”109 Keeping this in mind, the district court rejected the magistrate’s recommendation of dismissal, reasoning that the defendant could still prove its counterclaim of infringement with other discovery, provided plaintiff fully cooperated.110 In lieu of dismissal, the court awarded attorneys’ fees and costs the defendant incurred to defend its motion for sanctions.111

Courts will also impose attorneys’ fees and costs when a party violates a court order regarding electronic discovery. In Landmark Legal Foundation v. Environmental Protection Agency, the U.S. District Court for the

98 Id. 99 Id. 100 No. 03 Civ. 3613 VMMHD, 2004 WL 1393992 (S.D.N.Y. June 22, 2004). 101 Mastercard, at * 1. 102 Id. at *3. 103 Id. at *5. 104 Id. 105 Zubulake IV, 220 F.R.D. at 222. 106 Id. 107 Id. 108 No. 02 C 1403, 2003 WL 21230605, at *1-2 (N.D. Ill. May 27, 2003). 109 Kucala Enter., Ltd. v. Auto Wax Co., No. 02 C 1403, 2003 WL 22433095, at *5 (N.D. Ill. Oct. 27, 2003). 110 Id. at *6. 111 Id. at *7.

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District of Columbia, had enjoined the EPA from transporting, removing, or otherwise tampering with responsive information regarding the plaintiff’s Freedom of Information Act request.112 After plaintiff found out that for over three months after the order, the hard drives of several EPA officials had been reformatted, EPA individuals deleted e–mails, and backup tapes were erased and re-used, it filed a motion for contempt.113 Finding that these acts were frequent and severe, the court held that the EPA was in contempt and awarded attorneys’ fees and costs incurred by plaintiff as a result of the EPA’s conduct.114

Exclusion of witnesses. One of the more extreme forms of sanctions related to a party’s failure to preserve electronic evidence is having the court exclude key witnesses from testifying at trial. The court in United States v. Philip Morris USA, Inc., imposed such a sanction when defendant Philip Morris continued to delete e–mail for two years in accordance with its document retention policy, but contrary to the court’s preservation order.115 In addition, eleven corporate managers/officers failed to follow Philip Morris’s internal procedures for document preservation that resulted in the loss of a significant amount of e-e–mails.116 Consequently, the government filed a motion for sanctions seeking, among other things, that one particular employee who failed to “print and retain” relevant e–mails be precluded from testifying at trial.117 The court not only granted the request, but also precluded the other ten managers/officers from testifying in any capacity and sanctioned Philip Morris $250,000 for each individual who deleted e–mail for a total of $2.75 million in sanctions.118

Death Penalty. Where the preceding lesser sanctions would not provide an effective remedy or adequately penalize the party, or otherwise deter others from similar misconduct, courts may resort to the most extreme form of sanctions and dismiss the case with prejudice against the offending party.119

In Metropolitan Opera Association, Inc. v. Local 100, the defendant labor union committed a variety of electronic discovery violations.120 Specifically, defendant committed the following wrongful acts: (1) failure to implement a systematic procedure for document retention and preservation; (2) delegation of document production to a layperson who did not understand the scope of electronic discovery; (3) failure to give adequate instructions to their clients about their discovery obligations; (4) repetitive and false representation that it had provided all responsive electronic documents; (5) failure to produce e–mails in a timely manner; and (6) failure to remedy the situation or supplement false responses.121 Given the egregiousness of defendant’s willful conduct, the court expressly rejected the lesser forms of sanctions, and imposed the severest sanction and found the defendant liable.122 The court further ordered that defendant pay attorneys’ fees.123

Likewise, the court in Procter & Gamble Co. v. Haugen, dismissed the case with prejudice against plaintiffs for failing to preserve its own electronic data.124 In the underlying case, Procter and Gamble had sued several individual distributors of competitive products for distributing information that plaintiff was associated with

112 Landmark Legal Found. v. EPA, 272 F. Supp. 2d 70, 74 (D.D.C. 2003). 113 272 F. Supp. 2d at 74. 114 Id. at 87. 115 327 F. Supp. 2d 21, 23-24 (D.D.C. 2004). 116 Id. at 24. 117 Id. at 24-25 & n.1. 118 Id. at 25 & n. 1. 119 Metro. Opera Ass’n, Inc. v. Local 100, Hotel Employees & Rest. Employees Int’l Union, 212 F.R.D. 178, 230 (S.D.N.Y. 2003). 120 Id. 121 Id. at 221-23. 122 Id. at 230. 123 Id. at 231. 124 Procter & Gamble Co. v. Haugen, No. 1:95CV94DAK, 2003 WL 22080734, at *1 (D. Utah Aug. 19, 2003).

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Satanism.125 Plaintiff, however, failed to preserve relevant e–mails of five of its key employees.126 On Defendant’s motion, the court dismissed the case with prejudice because (1) plaintiff failed to preserve electronic data that was critical to its case; (2) the data was no longer available, without which defendants could not defend their case; and (3) plaintiff could not otherwise support its damages claim as a matter of law because it destroyed the evidence upon which its damages experts could rely.127 The court noted that dismissal was warranted for any one of the three foregoing reasons.128

Amendments to Federal Rules

In August 2004, the Civil Rules Advisory Committee of the Committee on Rules of Practice and Procedure of the U.S. Judicial Conference (the “Committee”) published proposed amendments to Federal Rules of Civil Procedure 16, 26, 33, 34, 37, and 45 and Form 35 related to the discovery of ESI.129 The Committee’s purpose was to “mak[e] the rules better able to accommodate the qualitative and quantitative difference between electronic discovery and conventional discovery and to provide a framework to resolve the issues electronic discovery presents.”130

The rules amendments address five primary areas: (1) early attention to electronic discovery issues such as the form of production, preservation of electronically stored information, and the problems of reviewing such information for privilege; (2) discovery of electronically stored information that is not reasonably accessible; (3) assertion of privilege after production; (4) application of Rules 33 and 34 to electronic information; and (5) sanctions for a party’s failure to preserve electronically stored information.131

The Committee held a series of public hearings in San Francisco, Dallas and Washington, D.C. where interested parties provided their opinions and suggestions regarding the proposed rules. In May of 2005, the Committee further revised the language in the proposed rules and in September submitted the proposed amended rules to the full Judicial Conference of the United States. The Judicial Conference approved by unanimous consent the draft amendments.132 The amendments became effective on December 1, 2006.

Addressing Discovery Issues in Early Stages of Litigation

Rules 16, 26, and Form 35. The amendments to Rules 16, 26, and Form 35 provide a mechanism for parties to discuss and address electronic discovery issues through pretrial conferences and scheduling orders at the outset of litigation.133 If the parties confer and create an agreed discovery plan addressing preservation of electronically stored information, the scope of electronic documents sought, the identity of key players who are the most likely to have relevant information, the form of production and privilege issues, they are more likely to avoid costly discovery disputes later.134 At a minimum, the parties should be able to identify and narrow the scope of their differences regarding electronic discovery if they talk about the issues early on.

125 Procter & Gamble Co. v. Haugen, 179 F.R.D. 622, 632 (D. Utah 1998), rev’d on other grounds, 222 F.3d 1262 (10th Cir. 2000). 126 Id. at 631. 127 Haugen, 2003 WL 22080734, at *1. 128 Id. 129 Report of the Civil Rules Advisory Committee, Proposed Amendments Involving Electronic Discovery 1 (Aug. 2004) (hereinafter “August Committee Report”) and Report of the Civil Rules Advisory Committee (May 27, 2005) (hereinafter “May Committee Report”) available at www.USCourts.gov under “federal rulemaking”. 130 August Committee Report at 5. 131 Id. at 5-6. 132 www.USCourts.gov., “federal rulemaking”, Judicial Conference Actions, Sept. 2005. 133 August Committee Report at 6. 134 See Sedona Principles at 16; August Committee Report at 6.

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Rule 26 and Amendments to Form 35. The amendment to Rule 26(a)(1)(B) provides that a party is to provide a copy of, or a description by category and location of, all documents, electronically stored information and tangible things that are in the possession, custody or control of the party and that the disclosing party may use to support its claims or defenses.135

The amendment to Rule 26(f) directs the parties to discuss the discovery and preservation of electronic data and develop a proposed discovery plan to address these issues.136 Such a plan should include the parties’ views and proposals regarding (1) “issues relating to disclosure or discovery of electronically stored information, including the form or forms in which it should be produced,” and (2) any issues relating to claims of privilege or protection as trial-preparation material, including whether to include their agreement in an order.137 If there are no electronic discovery issues, the parties need not discuss such issues in the Rule 26(f) conference.138 To facilitate the Rule 26(f) conference, the Committee has amended Form 35, which is a draft report of the parties’ discovery planning meeting, to include the handling of electronic discovery issues and the parties’ agreement to a privilege protection order.139

The amendment to Rule 26(b)(2)(b) embraces a two-tiered approach to electronic discovery depending on whether the data sought is “reasonably accessible.” First, the rule provides that “a party need not provide discovery of electronically stored information from sources that the party identifies as not reasonably accessible because of undue burden or cost.”140 The requesting party may move to compel the responding party to provide the information, and the responding party must show that the information is not reasonably accessible, or the responding party can move for a protective order.141 If the responding party makes the required showing, the court may nonetheless order discovery for good cause.142 Such an order may include the terms and conditions under which discovery should be produced, a directive that a sample be produced initially to determine the likelihood that relevant information will be found, terms regarding the costs of production (including cost-shifting), and limitations on the amount of information to be produced.143

The amendment to Rule 26(b)(5) addresses what happens if privileged information is produced without intent to waive the privilege when there is no “quick peek” or “claw back” agreement in place. The amended rule allows a party that has inadvertently produced privileged information to assert a privilege claim and present the matter to the court for its determination.144 The producing party must notify the requesting party within a reasonable time, and the requesting party must promptly return, sequester, or destroy the document in question.145 The producing party must preserve the information pending the court’s determination.146

Rule 16. New Rule 16 explicitly encourages the courts to address electronic discovery in their initial scheduling orders. Specifically, the amendment provides that the initial scheduling order may include “provisions for disclosure or discovery of electronically stored information” and may adopt “any agreements the parties reach for

135 FED. R. CIV. P. 26(a)(1)(B). 136 FED. R. CIV. P. Rule 26(f); Advisory Committee Note to Proposed FED. R. CIV. P. 26(f). 137 Rule 26(f)(3)&(4); Advisory Committee Note to Proposed FED. R. CIV. P. 26(f). 138See August Committee Report at 7. 139 See Form 35; August Committee Report at 6. 140 FED. R. CIV. P. 26(b)(2). 141 Id. 142 Id. 143 See Advisory Committee Note to Proposed FED. R. CIV. P. 26(b)(2). 144 FED. R. CIV. P. 26(b)(5); Advisory Committee Note to Proposed FED. R. CIV. P. 26(b)(5). 145 Id. Query how this process will work in a situation where production is .tif images with an accompanying database load file. 146 Id.

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asserting claims of privilege or protection as trial-preparation material after production.”147 Such provisions would help the parties avoid unnecessary discovery costs and any delay in obtaining discovery.148

The latter change—adopting the parties’ agreement for protection against waiving privilege—refers to what are typically known as “claw back” or “quick peek” agreements. Although these provisions can take many forms, they generally provide that inadvertent production of a privileged document does not destroy the privilege and that the recipient of such a document will return or destroy it upon receiving notice of the claim of privilege.149 The parties might even agree that production will occur without a complete review for privilege and that production does not waive the privilege.150 Regardless of the form the “quick peek” or “claw back” provision takes, the point is to minimize delay in production time while at the same time protecting valuable privileges. Note, however, that the operation and effect of any “claw back” agreements reached by the parties will depend on the substantive law of the applicable jurisdiction. There is a move afoot to standardize the law of privilege via proposed Rule of Evidence 502, which would be enacted by Congress if acceptable.151 A meeting at Fordham University occurred on April 24, 2006 to further consider proposed Federal Rule of Evidence 502, and a draft of the rule issued shortly thereafter.152

Rules 33, 34, and 45

The amendments to Rule 33, regarding interrogatories, and Rule 34, regarding production of documents, have also been changed to address the production of electronically stored information. Rule 45, which deals with subpoenas to third parties, has also been amended to reflect the changes in these rules as well as Rule 26.

Rule 34. Since the 1970 Amendments to Rule 34 added the term “data compilations” to include discovery of electronic information, the systems that store such information have changed dramatically. As a result, not all forms of electronic information fit neatly within the definition of “document” or “data compilations.”153 While the new Rule 34(a) specifically allows discovery of “electronically stored information,” it also expands the definition of document to include “sound recordings, images, and other data or data compilations stored in any medium.”154 “[I]n any medium” takes into account future technological developments.155 The final amendment to Rule 34(a) allows a requesting party to “test and sample” requested information.156 As discussed above, sampling is a tool that courts are beginning to use when massive amounts of data are requested to determine whether and to what extent to allow such discovery and to determine whether cost-shifting is appropriate.

Rule 34(b) has also been amended to allow the requesting party to “specify the form in which electronically stored information is to be produced.”157 If there is no request for a specific form and there is no contrary agreement between the parties or order of the court, the producing party has two options: to produce the information “in a form in which it is ordinarily maintained, or in an electronically searchable form.”158 The form in which electronic information is ordinarily maintained most likely means native file format. Electronically searchable information may include a number of forms—pdf, tif image, etc.—so long as they provide the ability for automatic text searching. In

147 FED. R. CIV. P. 16(b)(5)-(6). 148 See Advisory Committee Note to Proposed FED. R. CIV. P. 16 (May 2005) (citing Manual for Complex Litigation (4th ed.) § 11.446)). 149 Id. 150 Id. 151 March 22, 2006 Memorandum to Advisory Committee on Evidence Rules from Daniel Capra, Reporter, and Ken Brown, Consultant, re: Considerations of Rule Concerning Waiver of Attorney-Client Privilege and Work Product. 152 www.USCourts.gov/federal rulemaking/what’s new/advisory rules committee actions. 153 See Advisory Committee Note to Proposed FED. R. CIV. P. 34(a). 154 FED. R. CIV. P. 34(a); Advisory Committee Note to Proposed FED. R. CIV. P. 34(a). 155 See Advisory Committee Note to Proposed FED. R. CIV. P. 34(a). 156 Id. 157 FED. R. CIV. P. 34(b). 158 See August Committee Report at 16; FED R. CIV. P. 34(b); Advisory Committee Note to Proposed FED. R. CIV. P. 34(b).

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the written response to a Rule 34 request, the responding party is required to state the form that it intends to use for producing electronically stored information if either the requesting party did not specify a form of production or the responding party objects to the form identified by the requesting party.159 A party that responds to a discovery request by producing the electronically stored information in its chosen form without notifying the requesting party of that form may find itself in a battle with the requesting party over whether the form is “reasonably useable” and may ultimately have to produce the data again in a different form.160 Differences in the form of production should first be resolved by a meet and confer, and, if unsuccessful, by the court, and the court is not limited to the forms advocated by the parties.161

Rule 33. Rule 33 already provided a party that is responding to an interrogatory with the option to allow the requesting party to examine, audit, or inspect business records from which the answer can be derived and to make copies or summaries thereof.162 Such an option applies only if the burden of answering the interrogatory would be “substantially the same” for either party.163 Amended Rule 33(d) also gives the responding party the option to allow access to electronically stored information from which the answer can be derived.164 As with business records, the responding party must specify in sufficient detail where the requesting party can locate and identify the electronic records.165

Rule 45. Rule 45 governs subpoenas to third parties. The rule has been amended to correspond with the other rule changes regarding electronic discovery, and is generally parallel with Rule 34.

Rule 45 is amended to allow a party to subpoena electronically stored information as defined by amended Rule 34(a) and discussed above.166 Under the amendments, a subpoena may specify the form in which the electronically stored information is to be produced167 and the responding party may object to that form.168 If the subpoena does not specify the form, the responding party must produce the information in a form in which the person ordinarily maintains it or in an “electronically searchable” form.169 Like the two-tiered approach under Rule 26(b)(2)(c), Rule 45 is amended to provide that a person who responds to a subpoena “need not provide discovery of electronically stored information from sources that the person identifies as not reasonably accessible because of undue burden or cost.”170 As with Rule 26(b)(2)(c), a court may order discovery of electronic information that is not reasonably accessible upon a showing of good cause.171 Rule 45 also parallels Rule 26(b)(5) in that a third party who inadvertently produces privileged information in response to a subpoena may within a reasonable time inform the other party that it intends to claim the privilege, thereby requiring the recipient to return, sequester or destroy all copies of the document until a ruling is made by the court.172 Query whether the additional costs associated with the production of electronically-stored information may impact the burdens on third parties differently than parties.173

159 Advisory Committee Note to Proposed FED. R. CIV. P. 34(b). 160 Id. 161 Id. 162 FED. R. CIV. P. 33(d). 163 Id. 164 FED. R. CIV. P. 33(d); Advisory Committee Note to Proposed FED. R. CIV. P. 33(d). 165 Id. 166 Advisory Committee Note to Proposed FED. R. CIV. P. 45. 167 FED. R. CIV. P. 45(a)(1). 168 FED. R. CIV. P.45(c)(2)(B). 169 FED. R. CIV. P. 45(d)(1)(B). 170 FED. R. CIV. P.45(d)(1)(D). 171 Id. 172 FED. R. CIV. P.45(d)(2)(B). 173 See Bank of America Corp. v. S.R. Int’l Bus. Ins. Co., Ltd., 2006 WL 3093174 (N.C. Super.) (where third party subpoena imposes a burden on third party to retrieve and recover ESI which is “inaccessible” by its nature, there must be a high degree of

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Rule 37

Rule 37 has been amended to provide a controversial “safe harbor”174 for parties who fail to preserve electronically stored data. The amendment to Rule 37 provides:

(f) Electronically stored information. Absent exceptional circumstances, 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.

Rule 37(f) applies only to information lost during the routine operation of an electronic information system, meaning that the information must be lost as a result of the way in which such systems are generally designed and programmed to meet the party’s technical and business needs.175 The “routine operation” of computer systems includes the alteration and overwriting of information, a feature that does not exist when dealing with traditional paper documents.176 However, the operation of the system must be performed in good faith.177 Good faith may require the party to modify or suspend certain features of the “routine operation” of a computer system in order to prevent the loss of the potentially relevant information, if that information is subject to a preservation obligation, such as from common law, regulation or statute.178 When a preservation duty arises because of pending or reasonably anticipated litigation, the intervention and suspension of the routine operation of the computer system “is one aspect of what is often called a ‘litigation hold’.”179 The Committee notes: “A party cannot exploit the routine operation of an information system to evade discovery obligations by failing to prevent destruction of stored information that it is required to preserve.”180

Conference of Chief Justices Guidelines

The Conference of Chief Justices recognized in 2004 that electronic discovery disputes in state courts were increasing rapidly because of the near universal reliance on electronic records by both businesses and individuals.181 Additionally, the case law developing on these issues has not been consistent or often the subject of appellate review.182 The CCJ developed the guidelines to assist state court trial judges dealing with e-discovery issues, but the guidelines are not intended to be hard and fast rules to be inserted into existing procedural rules.183 Rather, the goal of the guidelines is to offer guidance for the discovery issues associated with ESI and to be a resource available to parties and courts, similar to the ABA Civil Discovery Standards and The Sedona Conference Guidelines.

The CCJ Guidelines adhere to the spirit of the federal rules amendments in that they encourage both the courts and the parties to communicate early and often about discovery of electronically-stored information. There are ten guidelines, beginning with a general definition of electronically-stored information.184 Guideline 1 also provides

marginal utility and it is reasonable to allocate costs to the requesting party); cf. Analog Devices, Inc. v. Michalski, 2006 WL 3287382 (N.C. Super.) (in party discovery court applies CCJ Guidelines and orders costs of restoration and recovery of Plaintiff’s email from backup tapes to be borne equally by the parties). See also John F. Baughman and H. Christopher Boehning, “Amended Rule 45: Will Nonparties Pay the Price of EDD?” N.Y. L.J., Nov. 9, 2006. 174 Hon. Lee Rosenthal, Chair of the Advisory Committee, discourages the use of the term “safe harbor” with respect to the Rule 37 amendments, but it has become a common description of the rule. 175 May Committee Report at 117. 176 Id. 177 Id. at 118. 178 Id. 179 Id. 180 Id. 181 CCJ Guidelines at vi. 182 Id. at vii. 183 Id. at vii. 184 Guideline 1, id. at 1.

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that “accessible information is electronically-stored information that is easily retrievable in the ordinary course of business without undue cost and burden.”185

Guideline 2 recommends that judges should encourage counsel to become familiar with their client’s information management systems, including how information is stored and retrieved. Additionally, parties should advise opposing counsel promptly as to the categories or types of electronically-stored information they intend to seek in the case.186

As with the federal rules, Guideline 3 suggests that courts should encourage counsel to meet and confer in order to come to agreement on the process for discovering electronically-stored information, including the nature of the information to be disclosed, the process for disclosure (which should include the form of production), and a reasonable discovery schedule given the nature of the data. If the parties fail to reach agreement, the Guidelines recommend that the court direct counsel to exchange certain types of information to allow the process to move forward, including identification of persons knowledgeable about the relevant computer systems, a list of the most likely custodians who may have the relevant electronic data, a list of the relevant electronic systems (including a description of the systems), issues of accessibility of data, preservation issues, and notice of any problems that may arise in connection with responding to discovery requests, including burdens associated with searching for certain electronically-stored information.187

Guideline 4 encourages scheduling an initial discovery hearing or conference to determine whether the parties have reached agreement on what information is to be produced, the form of production, preservation issues, privilege and clawback agreements, and the allocation of costs. The goal of Guideline 4 is to identify early emerging discovery issues so that they can be addressed by the court.188

Guideline 5 provides a series of factors that a court may weigh in dealing with either a motion to compel discovery of electronically-stored information or a motion for protective order on ESI. However, in the first instance, it recommends that courts first assess whether the information being sought is subject to discovery under applicable state rules. Only after this question has been answered in the affirmative does the court look at the series of factors and balance the benefits and burdens of the required discovery.189 The factors were derived from the ABA Civil Discovery Standards, Standard 29.b.iv. (Aug. 2004). Guideline 5 sets out a framework for decision-making on issues such as whether the information is “reasonably accessible.”190 Although not all the factors may be applicable in every case, the ones that are likely to arise include: (1) the ease of accessing the requested information; (2) the total cost of production compared to the amount in controversy; (3) the materiality of the information to the requesting party; (4) the availability of the information from other sources; (5) the complexity of the case and the importance of the issues addressed; and (6) the need to protect privileged, proprietary or confidential information such as trade secrets.191 Other issues, such as the relative ability of each party to control costs and its incentive to do so, and the resources of each party compared to the total cost of production may be implicated only in certain cases.192

Guideline 6 addresses issues concerning the form of production of electronically-stored information. In the paper discovery world, how the paper was to be produced was seldom the subject of disagreement among the parties. By contrast, electronically-stored information can be produced in multiple forms, including paper, in its native application, and .tiff or .pdf. Taking its cue from the amendments to Federal Rules of Civil Procedure 34(b)(ii) and (iii), Guideline 6 recognizes that parties should not be required to produce the same electronically-stored information in multiple formats. Therefore, in the absence of an agreement between the parties, Guideline 6 recommends that a 185 Id. at 1. See also TEX. R. CIV. P. 196.4; cf. FED. R. CIV. P. 26(b)(2)(B), which uses the more accurate term, “reasonably accessible”. 186 Id. at 1. 187 Id. at 2-3. 188 Id. at 4. 189 Id. at 5. 190 Id. at 6. 191 Id. at 5. 192 Id.

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judge should not ordinarily require electronically-stored information to be produced in more than one format.193 Additionally, the recommended forms of production are parallel to those in amended Rule 34(b)(ii), which are the form in which the information is ordinarily maintained (normally interpreted as native format production) or in a form that is “reasonably useable.”194

Guideline 7 deals with the issues of cost-shifting analyzed by Judge Scheindlin in Zubulake vs. USB Warburg LLC, 216 F.R.D. 280 (S.D.N.Y. 2003) (Zubulake III), which the CCJ recognized is the leading federal case on the issue of cost-shifting.195 In Zubulake III, Judge Scheindlin was confronted with the objection of defendant UBS to producing email from backup tapes and optical storage media created and maintained to meet SEC retention requirements. The defendants contended that, absent attorney review time, the production of the email could cost upwards of $175,000.196 Guideline 7 provides that if the information being sought is not “accessible” and a sampling protocol is insufficient, the court should consider the articulated factors in determining whether to shift a portion or all of the costs to the requesting party.197 The factors include whether the request is specifically tailored to discover relevant information, the availability of the information from other sources, the cost of production compared to the amount in controversy, as well as the cost of production compared to the resources available to each party, the ability of each party to control costs, the importance of the issues at stake in the litigation, and the benefits of obtaining the information.198 As in Zubulake III, the guideline provides these factors to be used in the court’s discretion. The guideline is meant to encourage the requesting party to “carefully assess whether all the information sought is worth paying for, while discouraging the producing party from storing the information in such a way as to make it extraordinarily costly to retrieve.”199

Guideline 9 discourages the issuance of preservation orders, and in particular, sweeping orders to halt all procedures such as recycling of backup tapes and halting automated data retention programs. Therefore, Guideline 9 recommends that a judge require a threshold showing that the continuing existence and integrity of the information is threatened before issuing a preservation order. If the court determines it is necessary to issue such order, the order should be narrowly tailored to protect the information in question.200

Guideline 10 addresses the issue of sanctions regarding the destruction of electronically-stored information. It recommends that a court impose sanctions only if there was a legal obligation to preserve the information at the time it was destroyed, the destruction of the material was not the result of routine, good-faith operations of an electronic information system, and the destroyed information was subject to production under state requirements.201 As noted by the CCJ, Guideline 10 closely tracks the changes to Federal Rule of Civil Procedure 37(f).202 It is less stringent than Sedona Principle 14, which requires a clear duty to preserve, intentional or reckless failure to preserve and produce, and a reasonable probability of material prejudice.203

What’s Coming?

In November 2006, the National Conference of Commissioners of Uniform State Laws (“NCCUSL”), drafters of the Uniform Commercial Code, circulated a draft of the “Uniform Rules Relating to the Discovery of 193 Id. at 6. 194 Id. at 6. 195 Id. at 7. 196 Id. at 7-8. 197 Id. at 7. 198 Id. at 7. 199 Id. at 8. Compare TEX. R. CIV. P. 196.4, which requires that when a court orders a responding party to produce information that is not “reasonably available . . . in the ordinary course of business,” the court must “also order that the requesting party pay the reasonable expenses of any extraordinary steps required to retrieve and produce the information.” 200 Id. at 9-10. 201 Id. at 10. 202 Id. at 11. 203 Sedona Principle 14.

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Electronically-Stored Information.”204 The current schedule provides for the drafting committee to complete the final draft of the Uniform Rules in February 2007, after which they will be forwarded to the full NCCUSL for approval.205 It is contemplated that the Uniform Rules will apply to cases in which the parties agree to the application or the court orders the application.206 However, the court may implement the rules sua sponte if no party makes a motion.207 The drafting committee recognized that much work had been done during the process of the development of the federal rules amendments, and therefore the draft promulgated by the committee “mirrors the spirit and direction of the recently adopted amendments to the Federal Rules of Civil Procedure.”208 The drafting committee therefore adopted, “often verbatim,” language from both the Federal Rules and the comments that accompany those rules.209 It is therefore not surprising to see the themes of transparency and open communications between the parties and with the court as overarching themes in the current draft of Uniform E-Discovery Rules. The parties should confer early and develop a joint plan to address issues of preservation, scope and form of production, method of asserting privilege and cost issues.210 In addition, the Uniform Rules track FRCP Rule 37(f)’s limitation on sanctions, providing that “absent exceptional circumstances, the court may not impose sanctions on a party for failing to provide electronically-stored information lost as the result of the routine, good-faith operation of an electronic information system.”211 Rule 9 embodies the distinction between electronically-stored information that is “accessible” and that which is “not reasonably accessible” as provided in FRCP 26(b)(2)(B).212 Rule 11, regarding subpoenas for the production of electronically-stored information, is intended “to make the process for responding to a discovery request involving electronically-stored information and the process for responding to a subpoena congruent.”213 Therefore, under the Uniform Rules, a party responding to a subpoena for ESI and parties to a litigation responding to a discovery request “stand on the same footing and have the same rights and obligations. A party or an attorney responsible for the issuance and service of the subpoena, however, is under a special duty to avoid imposing undue burden or expense on a person subject to the subpoena. The court shall enforce this duty whenever it is breached.”214

Conclusion

The challenges raised by electronic data in the context of litigation can certainly seem overwhelming, but the good news is that there is a great deal more guidance now from courts, the American Bar Association, the Conference of Chief Justices, The Sedona Conference, the NCCUSL and practitioners’ groups on how to handle electronic discovery, and, most significantly, changes to the Federal Rules of Civil Procedure. This new guidance and increased understanding of electronic data and discovery should allow most litigants to avoid the perils and pitfalls discussed in the decisions addressed in this paper.

204 Pike & Fischer Digital Discovery and E-Evidence, Vol. 7, No. 1 “NCCUSL Promulgates Uniform E-Discovery Rules for State Courts.” Cecil A. Lynn III, Esq. The post-meeting draft, with changes from the November 2006 drafting committee meeting, is available at www.law.upenn.edu/bll/ulc/udoera/2006postdraftnovember.htm. 205 Id. at p. 5. 206 Id. 207 Id. 208 NCCUSL Post- Meeting Draft, available at www.law.upenn.edu/bll/ulc/udoera/2006postdraftnovember.htm. 209 Id. 210 Id. 211 Id. at Rule 6. 212 Id. 213 Id. 214 Id.