4/3/2008

The Law & Technology

With much of discovery now in electronic format and the law catching up, new rules apply

By Robert M. Kelso, J.D., CPCU

In the past, the discovery process in the federal court system focused largely on tangible objects such as documents. This system worked well before the dawn of the computer age. Now, however, much if not all discoverable information might exist only in electronic format. Furthermore, due to the memory capabilities of modern computers, the amount of potentially relevant information has mushroomed.

Recognizing this reality, the federal court system recently revised the discovery process to create procedures to enhance and simplify discovery of electronic information. These revisions are designed to reduce costs, set out the court’s expectations with respect to the parties during the discovery process, enhance cooperation between parties and, if necessary, to punish parties for violations of the federal rules and/or court orders.

Furthermore, even though the federal rules are not binding in state courts, there is a trend among the states to adopt or follow portions of the federal rules with respect to discovery of electronic information. Consequently, state courts offer no refuge from the long arm of the federal discovery process.

While this discussion may seem academic, amendments to the federal discovery process have tremendous ramifications for any business. In the event of a lawsuit, the opposing attorney will likely seek a wide range of electronic information. The failure or inability to locate such information and provide it to the other side, or the accidental destruction of electronic information, can have catastrophic results. Some courts have instructed juries that they should conclude that the missing information was harmful to the defendant; other courts have imposed monetary sanctions running into the millions.

Timeline of a Civil Lawsuit
Obviously there are many actions which take place during the course of a lawsuit. Discovery is one activity, but it typically occurs well after suit is filed. Paradoxically, however, activities relevant to the discovery of electronic information occur very early in the litigation process—often well before litigation occurs.



For purposes of claims management, there are many issues to be considered. The following examples represent some of the considerations which must be taken into account in the age of electronic discovery:
  • At what point is it necessary to begin preserving electronic information?
  • In what format must information be retained?
  • What information must be retained?
  • What steps should be taken to insure that appropriate information is retained?
  • Are there proactive measures that can be taken to reduce risk?
  • Is it permissible to have a document destruction policy?
  • What happens if documents are destroyed, lost or not produced?

Foremost, at what point is it necessary to begin preserving electronic information? With respect to litigation, it is obvious that events will occur that may be relevant but which occur so long before the litigation that it was unforeseeable that the information should be retained. There comes a point in time in any dispute, however, where it becomes reasonably foreseeable that litigation is going to ensue. It is at this point that a duty attaches to preserve potentially relevant electronic information. In other words, if you think you are going to be sued, you should begin preserving information.

A second issue is what must be retained in terms of computer hardware. It is obvious that mail servers and other main computer components should be preserved. Electronic information, however, is defined very broadly under the federal procedures, and the list of potential devices which must be preserved is growing longer every day. Thus, in addition to the obvious locations, it is necessary to preserve data found in less obvious locations. For example, an obligation exists to retain relevant information contained in an employee’s PDA, cell phone or flash memory card to name a few potential information sources.

A third issue is what information must be retained. Obviously, requiring a large company to retain all information could rapidly bring its operations to a halt. For this reason, the federal rules have procedures which require counsel for the parties to meet early in the litigation to resolve disputes regarding what information is discoverable, how it will be discovered, who will bear the costs, and any other issues that arise.

A fourth issue is what steps should be taken in the pre-suit investigation to insure appropriate information is retained. The claims professional should consult with counsel, the insured, and if advised, an IT professional to determine where relevant information is stored and how to preserve that information. One consideration which might affect the duty to obtain electronic information is whether the claimant’s attorney has forwarded a litigation hold letter. Receipt of such a letter heightens the duty of the insured to retain items specifically identified in the letter, and would signify that it is reasonably foreseeable that litigation will ensue. For that matter, the insured’s counsel should send a litigation hold letter to the plaintiff to the extent the plaintiff may have relevant electronic information.

As part of the risk management process, many insurance professionals consult regularly with their insureds to identify and reduce various risks of loss. This is just one more. With these developments relative to discovery of electronically-stored information, consideration should be given to specific procedures, developed in advance, for the preservation of electronic data. By being proactive, the claims professional and insured will not have to rush to develop an appreciation of the applicable issues, and methods to deal with them, in conjunction with the handling of what may be a serious claim.

Whether or not it is permissible to have an electronic information destruction policy is frequently a consideration when examining litigation risk. Generally, such policies are permissible if they are routine programs. For example, a company might routinely purge the servers’ hard drives to maintain efficiency. Routine destruction policies should not result in any adverse impact in litigation. Obviously, however, such policies should be suspended as soon as litigation becomes reasonably foreseeable.

To highlight the importance of electronic discovery in today’s litigation environment, it is necessary to consider only a few outcomes in federal court where a party has lost, destroyed or intentionally hidden electronic information. In one case, the defendant’s failure to produce electronic information resulted in an instruction from the judge that the missing material should be presumed to be harmful to the defendant. The ultimate result was a verdict approaching $30 million in favor of the plaintiff. In another case, the defendant failed to preserve information in the proper manner, greatly increasing the cost of conducting the discovery. In that case, the party was required to pay an IT professional several hundred thousand dollars to recover the missing information.

As a final consideration, a well done pre-suit investigation that includesappropriate handling of electronic data increases the value of the investigation process and the effectiveness of defense counsel. More evidence is preserved, allowing for a full analysis and evaluation. This makes a successful pre-suit settlement more likely, and if suit does come, saves litigation costs. Itprovides defense counsel, at the outset of the litigation, with more information about the insured’s electronic data systems. Defense counsel requires this knowledge and information in order to comply with the discovery process and to properly represent the insured.
This article contains general information only and is not intended as legal advice. Robert M. Kelso, J.D., CPCU, and Eric D. Johnson, J.D., are attorneys in the Indianapolis, Indiana, Law Office of Kightlinger and Gray, LLP. They have over 15 years experience in the litigation of employment disputes, insurance defense, and complex litigation. They can be reached at rkelso@k-glaw.com, and ejohnson@k-glaw.com. More information is available at www.k-glaw.com.

CASE LAW:

Post-Amendment Cases - In decisions issued after the implementation of the rules, courts are requiring that the rules be followed.

Columbia Pictures, Inc. v. Bunnell, 245 F.R.D. 443 (C.D.Cal. 2007) [As a matter of first impression, information held in a computer’s random access memory (RAM) constitutes “electronically stored information” and thus is within the scope of discoverable information.]

Best Buy Stores, L.P. v. Developers Diversified Realty Corp., 2007 WL 4230806 (D.Minn. 2007) [Reasonable accessibility of electronically stored information (ESI), for discovery purposes, is best understood in terms of whether the ESI is kept in an accessible or inaccessible format; distinction largely depends upon the media on which the ESI is stored.]

Hubbard v. Potter, 247 F.R.D. 27 (D.D.C. 2008) [Theoretical possibility that other electronic documents might exist did not justify additional electronic discovery, in putative class action, absent any evidence that additional responsive documents existed.]

Peskoff v. Faber, 244 F.R.D. 54 (D.D.C. 2007) [It was appropriate to ascertain cost of forensic testing of the general partner’s computers and server to see if it justified a forensic search for relevant e-mails.]

Auto Club Family Ins. Co. v. Ahner, 2007 WL 2480322 (E.D.La. 2007) [Nonparties must produce electronic documents requested unless fulfilling the request would unreasonably exceed the ordinary kinds of expenses that subpoena recipients are typically expected to bear.]

Disability Rights Council of Greater Washington v. Washington, 242 F.R.D. 139 (D.D.C. 2007) [A civil rule- providing that absent exceptional circumstances, the district court may not impose sanctions on a party for failing to provide electronically stored information lost as result of the routine, good-faith operation of electronic information system-does not exempt a party who fails to stop the operation of system that is obliterating information that may be discoverable in litigation.]

Balfour Beatty Rail, Inc. v. Vaccarello, 2007 WL 169628 (M.D.Fla. 2007) [Federal Rule of Civil Procedure 34 permits a party to request documents, but it does not give the requesting party the right to conduct the actual search; allowing a party direct access to another party’s databases may be warranted in certain situations, such as a showing of noncompliance with discovery rules.]

Calyon v. Mizuho Securities USA Inc., 2007 WL 1468889 (S.D.N.Y.,2007) [The court denied Calyon’s request to compel defendants to produce to Calyon’s forensic expert the “mirror image” of the hard drive of the defendants’ personal computers because the court was not yet faced with any failure by the defendants to conduct a thorough forensic search of their computers, or to produce any and all relevant documents, files, metadata, and even hidden data fragments that Calyon may request.]

Memry Corp. v. Kentucky Oil Technology, N.V., 2007 WL 832937 (N.D.Cal. 2007) [The court denied the plaintiff’s motion to compel computers and storage media for forensic inspection by a third party consultant because the case did not involve “an extreme situation where data is likely to be destroyed or where computers have a special connection to the lawsuit.”]



This article contains general information only and is not intended as legal advice. Robert M. Kelso, J.D., CPCU is an attorney in the Indianapolis, Indiana, Law Office of Kightlinger and Gray, LLP.

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