The Unsignaled Intersection at 26 & 45: How to Safely Guide Third Parties Across the E-Discovery Superhighway

Transcription

1 75 DEF. COUNS. J. 228 (2008) The Unsignaled Intersection at 26 & 45: How to Safely Guide Third Parties Across the E-Discovery Superhighway Stephen F. McKinney Elizabeth H. Black HAYNSWORTH SINKLER BOYD, P.A Main Street, 22 nd Floor (29201) P.O. Box ( ) Columbia, South Carolina Phone: (803) Fax: (803)

2 Introduction: New Roads and Heavy Traffic By now, we ve all been there and all too often. An enterprising personal injury lawyer, a sophisticated mass tort lawyer, or highly skilled corporate counsel unleashes upon your client one of the newest and arguably most powerful weapons in the modern discovery arsenal a humble request for production or an unassuming subpoena. Although these documents can be short in length, modern production requests and subpoenas often ask for each and every electronic record in [the recipient s] possession, however stored and in whatever format, related to or touching in any way upon the [product, transaction, incident... ] at issue in this litigation. Instantly, the merits of the dispute or thirdparty request are swept aside into what seems like utter irrelevance in the face of the prospect of the money, manpower, and general business disruption associated with responding to a broad request for electronic information. We are living in a nearly totally digitalized world. Digital information is no longer a marginal curiosity or extravagance for our clients it is now their life s blood. traffic has surpassed telephone and postal communications in volume many times over, with American businesses generating 3.5 billion messages per day. A small company of 10 employees will create 250,000 pages (125 boxes) of annually. A University of California study concluded that 93% of all information generated/created annually in the United States is originally produced in digital form. Unfortunately, as digital information has made businesses more efficient and cheaper to operate, the primary corporate management tool for such information has become redundancy: duplicate, duplicate, duplicate. This problem is compounded by the fact that the primary disaster recovery tool for most application software (e.g. Microsoft Word) is also redundancy. 2

3 As a result, the document production challenge for litigators has increased dramatically as increasing amounts of information are stored exclusively in digital media, in various formats and various locations. Our clients from the largest to the smallest all rely on electronic data every single day and the rules of the road on the information superhighway are still developing. Sometimes in fits and starts, with bad facts leading to even worse results, and sometimes with sober consensus, the law has struggled to develop workable rules for this new road. That struggle, as reflected in recent case law and the 2006 amendments to some of the Federal Rules of Civil Procedure, has begun in perhaps the most logical place providing guidance to parties in civil litigation. There are, however, few such rules guiding nonparties, their attorneys and the courts at the, as yet, unsignaled intersection at Rules 26 and 45 of the Federal Rules of Civil procedure and their state law cognates. This paper will briefly examine the nature of the cross traffic at this intersection and suggest both some new rules and some interim navigational aids. E-Discovery and Rule 26: Solutions for Two -Way Traffic The December 1, 2006 amendments to the Federal Rules of Civil Procedure did not alter the fundamental principles underlying civil discovery. Rather, the amendments codified the emerging case law, making clear that electronically stored information, if relevant, is evidence that must be preserved and produced in civil litigation. See e.g. Zubulake v. UBS Warburg LLC (Zubulake I), 217 F.R.D. 309, (S.D.N.Y. 2003); Rowe Entm t, Inc. v. William Morris Agency, Inc., 205 F.R.D. 421, (S.D.N.Y. 2002). In addition, the amended Rules set forth certain obligations of parties as well as certain procedures that should be followed, taking into account the unique nature of, and challenges associated with, electronic data. See, e.g. Fed. R. Civ. P. 26(b)(2)(B). 1 1 For a list of helpful guidelines, websites, articles, cases, and other resources for e-discovery, please see Attachment A. 3

4 The fundamental process of producing electronically stored information is analogous to the process utilized for producing large quantities of hard copy documents, including identifying sources of potentially relevant information, preserving and searching those sources, reviewing the search results for relevancy and privilege, and finally producing the relevant documents and accompanying privilege logs. 2 Electronically stored information, however, presents significant challenges in both scope and scale that were not as pervasive in the pre-e-discovery days. As a technologically driven culture, we have taken the previous limitations on what information our clients could retain (i.e. physical storage space) and have, in effect, made document retention virtually unlimited through digital technology. There is now the potential for an overwhelming volume of responsive, electronically stored information for a fairly simple and routine lawsuit. Additionally, document retention programs, advanced management software, the existence of hard to resurrect back-up data, and the sophisticated computer professionals required to manage and cull the mountains of e-data can be tremendously expensive. Thus, the greatest strides in the evolution of e-discovery law under Rule 26 have addressed the concerns associated with the sometimes staggering costs and huge volumes of documents identified as potentially relevant or responsive to a simple discovery request. Under Rule 26, it is generally presumed that the responding party will bear the expense or burden of complying with a discovery request, but the responding party may request an order under Rule 26(c) conditioning discovery on the requesting party s partial or full payment of the costs of discovery. Oppenheimer Fund, Inc., v. Sanders, 437 U.S. 340, 358 (1978). Cost-shifting 2 The process of E-discovery is best described by Michael R. Arkfeld, Electronic Discovery & Evidence Best Practices Workbook (Law Partner Publishing ) (outlining steps of E-discovery as Step 1- Identify Responsive Data; Step 2- Preserve the Data; Step 3- Collect and Process the Data; Step 4- Filtering the Data; Step 5- Search, Retrieve and Analyze the Data; Step 6- Produce the Data) and Mary Mack, Esq. & Matt Deniston, The Practical Guide to Electronic Discovery (Discovery Center of Excellence 2004) (detailing the process by which electronic data is collected, culled, prepared, reviewed and produced). 4

5 from the responding party to the requesting party should be considered only when the burden or expense of electronic discovery outweighs the likely benefit. Fed. R. Civ. P. 26(b)(2); see also Hagemeyer N. Am., Inc. v. Gateway Data Scis. Corp., 222 F.R.D. 594, (E.D. Wis. 2004); Zubulake v. UBS Warburg LLC (Zubulake III), 216 F.R.D. 280, 289 (S.D.N.Y. 2004). Because responding to electronic discovery is often expensive and time consuming, the most common and widely accepted method of dealing with these issues in this context is a balancing test or guideline for the court to apply. Accessible data must be produced and paid for by the responding party. Zubulake III, 216 F.R.D. at 284. The considerations from the Zubulake series of cases has become the standard for e-discovery under Rule 26. For inaccessible data, the following considerations are appropriate in determining cost allocation: Id. 1. The extent to which the request is specifically tailored to discover relevant information; 2. The availability of such information from other sources; 3. The total cost of production, compared to the amount in controversy; 4. The total cost of production, compared to the resources available to each party; 5. The relative ability of each party to control costs and its incentive to do so; 6. The importance of the issues at stake in the litigation; and 7. The relative benefits to the parties of obtaining the information. The revised rules have responded to issues raised in the e-discovery case law and also provide further protections and considerations for parties during the discovery process. For example, the 2006 amendments to Rule 26 provide: A party need not provide discovery of electronically stored information from sources that the party identifies as not reasonably accessible because of undue 5

6 burden or cost. On motion to compel discovery or for a protective order, the party from who discovery is sought must show that the information is not reasonably accessible because of undue burden or cost. If that showing is made, the court may nonetheless order discovery from such sources if the requesting party shows good cause, considering the limitations of Rule 26(b)(2)(C). Fed. R. Civ. P. 26(b)(2)(B). Thus, under Rule 26, in the context of e-discovery between parties federal courts must explicitly consider whether the electronically stored information is readily accessible and whether there is an undue burden or cost. Importantly, the rules give the judge discretion in crafting the appropriate discovery obligations in each case. Id. ( The court may specify conditions for the [electronic] discovery. ). Also, practitioners and courts have developed further creative methods for dealing with the scope and scale of potential documents in e-discovery. See, e.g. O Bar v. Lowe s Home Centers, Inc., 2007 U.S. Dist. LEXIS (W.D.N.C. May 2, 2007). These have now been somewhat codified in Rule 26. See Fed. R. Civ. P. 26(b)(5)(B). One significant tool practitioners employ to reduce the cost of the privilege review of electronic information is a claw back agreement. The claw back agreement, in design, allows inadvertently disclosed privileged information to be clawed back with the privilege preserved. Some courts have encouraged parties to enter into these agreements to expedite discovery. See Amersham Biosciences Corp. v. PerkinElmer, Inc., 2007 U.S. Dist. LEXIS 6841 (D.N.J. Jan. 31, 2007). Another popular method is the quick peek practice of allowing opposing counsel to take an attorney s eyes only sampling of the initial cull of raw data to aid opposing counsel in making an informed judgment about proceeding with the often expensive course of requesting, analyzing, and producing large amounts of electronic information. See O Bar, 2007 U.S. Dist. LEXIS Both of these methods and their approval in the amendments to Rule 26 demonstrate the relatively high level of sophistication of the legal community s response to 6

7 concerns about reasonableness and cost allocation between parties engaged in electronic discovery. Okay, fair enough. So what happens when nonparties, cruising down the information superhighway, minding their own business, are brought into the picture? E-Discovery and Rule 45: Solutions for Cross Traffic Rule 45 governs the issuance to and responses of third parties served with subpoenas. As with discovery between parties, much of the modern subpoena requests seek electronic information that is prone to the scope and scale problems of high cost and volume. Yet despite the developing road rules for courts and practitioners managing the e-data issues of parties, virtually no rules have developed to bring Rule 45 into the realities of the twenty-first century. Consider: You have been retained by a fairly small company to assist them in responding to a Rule 45 subpoena issued by a competitor. The subpoena, like many or most of those served these days, seeks the production of broad categories of electronic information. Upon consultation with your client, you find out that there is very likely relevant and responsive data on the company s computer system, but it is buried, unsorted, and unmanaged on several hard drives or a computer network. The costs associated with sorting, collecting, reviewing, and producing the requested documents have the potential to be astronomical. As is often the case with electronic discovery, you do not know what you have until you start digging. There are myriad concerns under Rule 45 what degree of protection are we entitled to from the court? What about proprietary information? What about the expense of all this? How can the parties or the court figure out if the expenses will be significant without knowing what is on those computers? 7

8 What if you represent the party serving the subpoena? How do you frame your subpoena, given the differences between Rule 26 and Rule 45? What you may find is that Rule 45 does not provide the guidance, and more importantly, the protections it did before the information highway got to be so super. Although Rules 26(b)(2) and Rule 45(c) similarly permit the court to order production of electronically stored information, there is one important and overriding distinction. Rule 45 provides that a nonparty subject to an order compelling production must be protected from significant expense. By contrast, with respect to parties under Rule 26, the Rules provide that the court may exercise its discretion in shifting costs. For example: On its face, Rule 45 provides nonparties greater protection than Rule 26 affords parties. 45(c)(1): A party or attorney responsible for issuing and serving a subpoena must take reasonable steps to avoid imposing undue burden or expense on a person subject to the subpoena. 45(c)(1): The issuing court must enforce this duty. 45(c)(3)(A)(iii): On timely motion, the issuing court must quash or modify a subpoena that: requires disclosure of privileged or other protected matter. 45(c)(3)(B)(i): The issuing court may, on motion, quash or modify the subpoena if it requires: disclosing a trade secret or other confidential research, development, or commercial information. Under Rule 45, the questions before the district court are whether the subpoena imposes expenses on the nonparty, and whether those expenses are significant. If they are, the court must protect the nonparty by requiring the party seeking discovery to bear at least enough of the expense to render the remainder non-significant. The rule is susceptible of no other interpretation. Linder v. Calero-Portocarrerro, 251 F.3d 178, 182 (D.C. Cir. 2001) (emphasis added). 8

9 In practice, however, the burdens of electronic discovery have rendered nonparties protections under Rule 45 less of a comfort because there is no accompanying framework or guidelines for balancing, court discretion, and situational creativity to suit each case s unique electronic discovery requirements. This especially comes into play with the district court s mandate to protect nonparties from significant expense. See Fed. R. Civ. P. 45(c)(1). Electronic discovery is expensive sometimes prohibitively so. Significant expense, however, has been found in comparably miniscule amounts to the total cost of some electronic discovery costs. See Williams v. City of Dallas, 178 F.R.D. 103, 113 (N.D. Tex. 1998) (finding $9,000 to be significant ). Rule 45, on its face and in practice, only allows the court to go one way or another on the cost issue. Indeed, unlike discovery under Rule 26 where it is presumed each party will bear the cost burden of discovery, under Rule 45, the opposite is true. In order to shift the significant expenses to the nonparty responding to the subpoena, a stringent test must be met: (1) the nonparty must have an actual interest in the outcome of the case, (2) the nonparty must have a better ability to pay than the issuer, and (3) the case must present an issue of public importance. In re Exxon Valdez, 142 F.R.D. 380, 383 (D.D.C. 1992). Thus, under current Rule 45 law, the requesting party will nearly always have to bear the increasingly prohibitive costs of electronic discovery. Some guidance is available in determining what constitutes a significant expense under amended Rule 45 in the electronic discovery context, but not much. For example, a North Carolina state court has refused to order a nonparty to produce backup tapes of s that had been deleted based upon the significant burden the nonparty would be required to undertake in complying with the request, which the court also found to be premature. See Bank of America Corp. v. SR Int l Business Ins. Co., Ltd., 2006 NCBC LEXIS 9

10 17 (N.C. Super. Nov. 1, 2006). In Bank of America Corp., the nonparty submitted an estimate by a third party vendor that the restoration, extraction, conversion, and processing of the requested s on its backup tapes would cost approximately $1.4 million. The court reasoned that Rule 45 affords greater protection to nonparties than Rule 26 provides to parties. The courts have an obligation to protect nonparties from burden and expense imposed without sufficient justification. Id. at *16. In making its determination, the court considered the following facts: (1) the size of the expense and the burden placed upon a nonparty; (2) the breadth of the information sought; (3) the availability of the information from other sources; (4) the fact that the information sought was on inaccessible backup tapes; (5) the absence of any unwarranted or suspicious destruction of information; (6) the low level of marginal utility shown at this stage of the proceedings. Id. at *17. Bank of America Corp. thus suggests that the balancing factors so prevalent in a Rule 26 analysis may have a place in determining cost and burden allocation under Rule 45 subpoenas. Indeed, Bank of America Corp. cites favorably to the now common Rule 26 balancing test first proposed in Zubulake I. Id. An argument could also be made that the balancing test for Rule 45 should be more comprehensive because Rule 45 protects nonparties from significant expense. Significant expense can occur even with accessible data, which is not part of the cost-shifting analysis under Rule 26. See Zubulake III, 216 F.R.D. at 284. Rule 45 s fundamental premise is that it is inequitable to require a nonparty to litigation to bear the brunt of the now-frequent high costs of responding to a request for electronic information. Consequently, attorneys must adhere to this principle when determining the 10

11 definition of significant expense in the Rule 45 context. This all-important phrase, however, must encompass the special concerns that come with electronic information and, above all, must be defined flexibly enough to consider that costs vary widely in each case based on the sophistication of the computer network, the document management program, the amount of information, and the scope of items requested. The body of law that has closely and thoroughly analyzed these unique e-discovery issues stems from Rule 26. It is thus both useful and prudent to adapt the balancing factors already developed to the context of Rule 45. The courts must protect nonparties from incurring significant expense in responding to a subpoena that fundamental fact has not changed, and nor should it. But the circumstances of the significant expense have changed and are constantly evolving as technology matures. Rule 45 can best maintain its strong protections of nonparties responding to subpoenas if it generates a body of law that provides concrete, yet adaptable, guidelines and criteria for determining significant expense. As the system has learned through Rule 26, there is no magic formula for allocating discovery costs and burdens. At best, attorneys, judges, and parties have recognized that discretion and flexibility are the best ways to maintain fairness and, as applied to Rule 45, protect nonparties from significant expense in the ever-changing world of e-discovery. Crossing the Intersection at 26 and 45 A number of the rules and navigational aids that have been road-tested with e-discovery under Rule 26 can and should apply, albeit with some modifications, when advising and advocating for either a party serving, or a nonparty responding to, a subpoena seeking the production of e-data. 11

12 1. If you are drafting a Rule 45 subpoena, initially request only forms of accessible data, for which significant expense is less likely to be a factor. Use the data obtained from the initial request to help demonstrate the relevance and importance of obtaining inaccessible data. 2. Whether you are drafting or responding to a subpoena, dialogue early and often with opposing counsel as to the responding party s electronic information situation. Rule 26(f) has crafted a requirement that parties in discovery specifically discuss issues of e-discovery and privilege early in the process, which can be adapted to Rule Deal with the cost and volume issues early. Think about negotiating a tiered system of determining costs and volume. For example, when faced with a mountain of data of unknown utility, perhaps the requesting party should pay for an independent vendor to search the data. If the return is small, the responding party can bear the costs. If the return is large, agree to return to the negotiating table to hammer out a cost solution based on balancing factors and protecting the responding party from significant expense. 4. Think critically and openly about using a claw back or quick peek agreement. These are popular ways to save on costs especially attorney review time but should provide for the extra protections granted to nonparties, such as protection of proprietary information. 5. Consider a consent production order that addresses not only the additional protections afforded to nonparties, but also each detail related to cost reimbursement or allocation. 6. Consider the engagement of an outside data search vendor who can, pursuant to a confidentiality agreement, receive and search unreviewed e-data using search terms developed by the party serving the subpoena or collaboratively by the party and nonparty. 12

13 7. Determine as early as possible whether collaboration with opposing counsel will be available only in limited supply. If so, seek the protection of the court before expenses mount. With imagination, planning and close attention to both the old and new rules of the road, you can safely guide your clients through the intersection at 26 and 45, so that they can get back down the information superhighway to the places they really want and need to go. 13

14 ATTACHMENT A 2009 Haynsworth Sinkler Boyd, P.A.

15 TASK FORCES AND STUDY GROUPS RESOURCES Guidelines for State Trial Courts Regarding Discovery of Electronically Stored Information, issued by the Conference of Chief Justices and the National Center for State Courts (2006) (available online at American Bar Association s Civil Discovery Standards (Rev. 2004), Standard 29 on Electronic Information (discussing factors court should consider in allocating costs of discovering electronically stored information) (available online at National Center for State Court s Electronic Discovery Resource Guide, listing numerous articles and resources (available online at The Sedona Principles: Best Practices, Recommendation and Principles for Addressing Electronic Document Production, a project of the Sedona Conference Working Group on Electronic Document Retention and Production ((2d ed. June 2007) (available online at The Sedona Principles: Best Practices, Recommendation and Principles for Addressing Electronic Document Production, a project of the Sedona Conference Working Group on Electronic Document Retention and Production (2d ed. June 2007), Principle 13.c at p. 69 (discussing potential impact of Rule 45 subpoena to non-party for electronically stored information and stating that [i]n light of the potentially enormous burdens involved with nonparty discovery involving electronically stored information, parties seeking information from non-parties have a substantial interest in narrowly tailoring requests in light of a greater likelihood that a court may impose cost-sharing or cost-shifting ) (available online at GUIDELINES OR RULES ISSUED BY COURTS Ad Hoc Committee for Electronic Discovery of the U.S. District Court for the District of Delaware, Default Standard for Discovery of Electronic Documents ( E-Discovery ) (available online at U.S. District Court for the District of Kansas, Guidelines for the Discovery of Electronically Stored Information (October 2006) (available online at U.S. District Court for the District of New Jersey, Local Civil Rule 26.1(d) (Discovery of Digital Information Including Computer-Based Information) (available online at Haynsworth Sinkler Boyd, P.A.

16 Mississippi Rules of Civil Procedure, Rule 26(b)(5) (addressing discovery of electronic data) (available online at SIONS+GOVERNING+DISCOVERY&IDNum=2). Texas Rules of Civil Procedure, Rule (addressing requests for production that involve electronic or magnetic data) (available online at ARTICLES Martin H. Redish, Electronic Discovery and the Litigation Matrix, 51 Duke L.J. 561 (Nov. 2001) (considering the need for courts to develop a legal framework for the discovery of electronically stored information and the need for a conditional cost-shifting model solely for use in the electronic discovery context) (available online at Kenneth J. Withers, Electronic Discovery Disputes: Decisional Guidance, Civil Action (Summer 2004) at 4 (available online at Corrine L. Giacobbe, Allocating Discovery Costs in the Computer Age: Deciding Who Should Bear the Costs of Discovery of Electronically Stored Data, 57 Wash. & Lee L. Rev. 257 (2000) (available for purchase online from or Lexis or Westlaw databases). John F. Baughman and H. Christopher Boehning, Amended Rule 45: Will Nonparties Pay the Price of EDD?, New York Law Journal (Nov. 9, 2006) (available online with subscription at John F. Baughman and H. Christopher Boehning, Electronic Discovery: Amended Rule 45: Shifting Non-Party Attorney s Fees, New York Law Journal (Oct. 24, 2006) (available online with subscription at CASES ADDRESSING ISSUES ARISING FROM SUBPOENA TO NON-PARTY United States v. Columbia Broadcasting Sys., Inc., 666 F.2d 364, 371 (9th Cir. 1982) ( [n]onparty witnesses are powerless to control the scope of litigation and discovery and should not be forced to subsidize an unreasonable share of the costs of a litigation to which they are not a party ). Allread v. City of Grenada, 988 F.2d 1425, 1433 (5th Cir. 1993) (discussing factors to consider regarding inadvertent disclosure of electronically stored information subject to the attorney-client privilege). Rowe Entertainment, Inc. v. William Morris Agency, Inc., 205 F.R.D. 421, 431 (S.D.N.Y. 2002) (shifting costs of production of from backup tapes in order to protect parties from undue burdens and costs under Rule 26(c) after a balancing approach involving specificity, likelihood 2009 Haynsworth Sinkler Boyd, P.A. 2

17 of recovery of critical information, availability of information from other sources, purposes for which maintained, relative benefit, total costs associated with production, relative ability to control costs and resources), affirmed, No. 98 Civ. 8272(RPP), 2002 WL (Patterson, J.) (S.D.N.Y. May 9, 2002). Zubulake v. UBS Warburg LLC, 217 F.R.D. 309, (S.D.N.Y. 2003) ( Zubulake I ) (noting that whether production of documents is unduly burdensome or expensive turns primarily on whether it is kept in an accessible or inaccessible format, and formulating sevenfactor test for determining whether cost-shifting might be appropriate). Zubulake v. UBS Warburg, LLC, 216 F.R.D. 280 (S.D.N.Y. 2003) ( Zubulake III ) (granting plaintiff-employee s motion to compel production of remaining backup s where court found that marginal utility of backup tapes was potentially high, cost of restoration was not significantly disproportionate to projected value of the case, plaintiff could cover at least some of the cost of restoration, and plaintiff demonstrated there was relevant evidence on the backup tapes). Wiginton v. CB Richard Ellis, Inc., No. 02-C-6832, 229 F.R.D. 568, 573 (N.D. Ill. Aug. 9, 2004) (holding that the importance of the requested discovery in resolving the issues of the litigation should be considered for cost-shifting in addition to the factors in the McPeek, Rowe and Zubulake cases, and finding that these factors required defendant to bear 25 percent and plaintiffs 75 percent of the costs of restoring defendant s backup tapes, searching them and transferring them to an electronic viewer). Capricorn Power Co. v. Siemens Westinghouse Power Corp., 220 F.R.D. 429, (W.D. Pa. 2004) (adopting balancing test to decide motion to preserve documents, things and land: 1) the level of concern the court has for the continuing existence and maintenance of the integrity of the evidence in question in the absence of an order directing preservation of the evidence; 2) any irreparable harm likely to result to the party seeking the preservation of evidence absent an order directing preservation; and 3) the capability of an individual, entity, or party to maintain the evidence sought to be preserved, not only as to the evidence s original form, condition or contents, but also the physical, spatial and financial burdens created by ordering evidence preservation. ) WEBSITES Paid-access website that purports to be where you will find the most up-to-date information, resources and news available about electronic discovery. Website of Kenneth J. Withers, a lawyer-librarian, containing articles and other information on e-discovery issues (Doc ) 2009 Haynsworth Sinkler Boyd, P.A. 3