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The law related to electronic discovery is evolving quickly. This article discusses two issues: (1) the scope of a lawyer's obligations to insure that a client preserves and produces appropriate electronic data; and (2) how courts determine who should bear the cost of e-discovery. There is little relevant law from the state or federal courts in Tennessee. So, this article will discuss principles gathered from leading cases around the country.
WHAT ARE A LAWYER'S OBLIGATIONS?
In order to understand the latest decisions regarding an attorney's e-discovery obligations, it is important to understand that parties have long had the duty to preserve relevant evidence once litigation appears to be reasonably likely. The demise of the Arthur Andersen accounting firm provides a well-known example of this duty playing out with significant consequence. Andersen was indicted and convicted of asking employees to destroy documents relevant to an SEC investigation. This essentially put it out of business, even though the conviction was recently overturned.
In litigation, when relevant evidence is destroyed – accidentally or otherwise – courts have the power to fashion sanctions ranging from monetary penalties to jury instructions allowing adverse inferences to be made from the loss of evidence. The exact nature of the penalty is determined on a case-by-case basis and can depend on balancing factors such as whether the party in control of the evidence had an obligation to preserve it at the time of destruction, whether the records were destroyed negligently or intentionally, and whether the evidence would be considered to be harmful to the claim or defense of the destroying party.
As applied to e-discovery, the state of the law is that, once a party reasonably anticipates litigation, it must suspend its routine retention and destruction policies regarding electronic data. This clearly applies to data on individual desktop and laptop computers, as well as the party's active servers. Whether this litigation hold also applies to data backups can depend on the nature of the backup. For example, backups that are largely inaccessible and are being held for disaster recovery purposes only are generally not covered by a litigation hold. However, backups that are being used actively for data retrieval are likely to be subject to a litigation hold.
In addition to a party's duty to enact a litigation hold, recent case law makes clear that a lawyer "must" oversee the party's efforts to retain and produce relevant documents. A leading case, Zubulake v. UBS Warburg LLC, 2004 U.S. Dist. LEXIS 13574 (S.D.N.Y. 2004), holds that "proper communication" between a party and its lawyer "will ensure" that: (1) all relevant sources of data are discovered; (2) all relevant data is retained on a continuing basis; and (3) all relevant, non-privileged data is produced to the other parties in the case.
Regarding the obligation to ensure that all relevant sources of data are discovered, the court held that it was not sufficient to simply notify the client of the concept of a litigation hold. Rather, a lawyer "must take affirmative steps to monitor compliance [with the litigation hold] so that all sources of discoverable information are identified and searched."
Next, the court described what steps a lawyer must take to ensure ongoing compliance after reasonable steps have been taken to identify all sources of relevant information. The court held that lawyers must issue a litigation hold at the beginning of a case, and also "periodically" re-issue the litigation hold "so that new employees are aware of it, and so that it is fresh in the minds of all employees." The court also thought that counsel should communicate the litigation hold directly to "key players" in the litigation. While it seemed that the court was intentionally vague about what is meant by "key players", it suggested that the term includes at least the people described in a party's mandatory initial disclosures. Last, the court suggested that counsel should take steps to be confident that relevant files and backups have actually been segregated for later review.
The court in Zubulake appeared to understand fully the serious impact of its ruling. In a postscript to the opinion, the court makes the case that the initial era of e-discovery, where everything was new and it was easy for parties to make honest mistakes in handling data, is slipping away in favor of time where "parties and their counsel are fully on notice of their responsibility to preserve and produce electronically stored information."
In this vein, in May 2005, the Civil Rules Advisory Committee of the Judicial Conference of the United States recommended amendments to Rules 16, 26, 33, 34, 37 and 45 of the Federal Rules of Civil Procedure. The changes relate to electronic discovery and are subject to the consideration and approval of the Judicial Conference. The text of the revisions and related commentary can be reviewed at www.mglaw.net/AdvisoryCommitteeReport052705.htm. If the remaining steps in the approval process take place without delay, the revisions should be effective on December 1, 2006. It will be interesting to watch the law continue to grapple with the explosion of electronic data in the marketplace.
WHO PAYS FOR E-DISCOVERY?
In a 2003 case in Memphis, Medtronic Sofamor Danek, Inc. v. Karlin Technology, Inc., 2003 U.S. Dist. LEXIS 14447 (W.D. Tenn. 2003), the parties argued over who should bear the cost of producing a significant amount of electronic data. One party asserted that the discovery requests sought 20,000 gigabytes of data stored on 515 backup tapes. The other party thought it was more like 61 terabytes of data on 993 backup tapes. The court concluded that, whoever was right about the amount of data in question, the cost of restoring the data and searching for relevant documents "reasonably could be in the range of several million dollars." This did not include the cost of conducting a privilege review and actually producing the documents.
Generally, the party responding to discovery must bear the costs associated with complying with lawful discovery requests. However, Rule 26(b)(2)(iii) of the Federal Rules of Civil Procedure allows a court to protect a litigant from undue burden by limiting discovery where the burden imposed by a particular request is not proportional to the needs of the case. This power has been interpreted to allow courts to shift some or all of the costs to the requesting party in appropriate circumstances. So, when faced with significant e-discovery requests, courts must decide first whether the burden on the producing party is too great. If so, the court should then decide how to allocate the costs between the parties.
In Medtronic, the court used the Rowe test to determine whether there was an undue burden on the producing party. The Rowe test is an 8 factor balancing test that considers: (1) the specificity of the discovery requests; (2) the likelihood of discovering critical information; (3) the availability of such information from other sources; (4) the purposes for which the responding party maintains the requested data; (5) the relative benefit to the parties of obtaining the information; (6) the total cost associated with the production; (7) the relative ability of each party to control costs and its incentive to do so; and (8) the resources available to each party. See Rowe Entertainment, Inc. v. The William Morris Agency, Inc., 205 F.R.D. 421, 428-29 (S.D.N.Y. 2002). In Medtronic, the court considered each of these factors, seeming to give approximately equal weight to each, and decided that the parties should share in the cost of the extensive e-discovery.
There are some recent decisions from courts outside of Tennessee that criticize the Rowe test. For example, in Hagemeyer North America, Inc. v. Gateway Data Sciences Corporation, 222 F.R.D. 594 (E.D. Wisc. 2004), the court complains that the Rowe test does not closely enough track the factors listed in Rule 26(b)(2)(iii). Instead, that court adopted a similar, but not identical, 7 factor balancing test that weighs each factor "in descending order of importance, not equally." Under this approach, the three most important factors are "the extent to which the request is specifically tailored to discover relevant information", "the availability of such information from other sources" and "the total cost of production, compared to the resources available to each party." Interestingly, this court also ordered that a sample of backup data be restored first so that the parties could argue the factors to be balanced to the court in a more informed manner.
In summary, while the case law regarding who should bear the costs of e-discovery is becoming more developed, it will still be some time before it is uniform. Until then, it probably makes sense for litigators to update research frequently.
For more information about this topic, please contact Bob Mendes (rjm@mglaw.net) or one of our other Litigation attorneys. |
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