UNDERSTANDING E DISCOVERY A PRACTICAL GUIDE. 99 Park Avenue, 16 th Floor New York, New York

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1 UNDERSTANDING E DISCOVERY A PRACTICAL GUIDE 1

2 What is ESI? Information that exists in a medium that can only be read through the use of computers Examples Word Documents Databases Spreadsheets Multimedia Files Data Backups on Magnetic Tape or Other Media CDs and DVDs 2

3 Why the Big Fuss about ESI? Potentially Massive Volume communication Numerous copies, all preserved User-generated and automatic replication Persistent data Metadata - Electronic information about contents Extraordinary volume of storage devices 3

4 Why the Big Fuss About ESI? Numerous Locations Desktop Hard Drives Laptops Servers Flash Drives CDs and DVDs Backup Tapes Spawned E-Discovery Industry Companies sort through massive amounts of data to find relevant information and produce digital output $2 Billion dollar industry, growing at 35% per year (2006) 4

5 Why Do You Care? Has your organization ever been sued? Has your organization ever had to respond to a subpoena? 90% of U.S. companies are involved in some type of litigation 5

6 Why Do You Care? You have a legal obligation to produce ESI Traditional rules of discovery still apply Information is discoverable if it is relevant to the claim or defense of any party or likely to lead to the discovery of admissible evidence. Specific rules apply only to ESI Federal Rules of Civil Procedure were amended in 2006 to specifically provide for the discovery of ESI Must produce documents as they are kept in the usual course of business or organize and label them to correspond to the categories in the request Corresponding state laws and discovery rules Traditional rules States catching up regarding specific rules for ESI Non-Binding Guidelines for State Trial Courts Regarding Discovery of Electronically-Stored Information Board has a legal duty to put reasonable controls into place to ensure compliance with applicable legal standards In re Caremark Int l. Inc. Derivative Litigation (Del. Ch. 1996) 6

7 Why Do You Care? Failing to care can result in enormous costs Financial Penalties If an order to provide discovery is not complied with, the Federal Rules of Civil Procedure authorize sanctions New Jersey Court imposed $566,000 sanctions on Samsung for failing to place a litigation hold on its documents to prevent the destruction of Mosaid Technologies, Inc. v. Samsung Electronics (D. N.J. 2004) D.C. Court ordered $2.75 million sanctions on Philip Morris because corporate managers deleted after litigation began U.S. v. Philip Morris USA Inc. (D. D.C. 2004) Morgan Stanley agreed to pay a $15 million penalty for repeated production failures SEC v. Morgan Stanley & Co. (D. D.C. 2006) Generally, no sanctions may be imposed if ESI is was lost as a result of the routine, good-faith operation of an electronic information system 7

8 Why Do You Care? Adverse inference jury instruction Jury in Samsung case instructed that it may infer that the evidence would have been unfavorable to defendants Preclusion of evidence on the corresponding topic Offending managers in the Philip Morris case were not allowed to testify at trial Estoppel Entry of judgment Attorney s Fees 8

9 Why Do You Care? You can limit the costs and scope of e-discovery by implementing a records retention policy Courts may consider shifting costs of discovery to the requesting party when data is inaccessible Inaccessible includes data on backup tapes and legacy systems Courts will consider seven factors when determining whether to shift costs: The extent to which the request is specifically tailored to discover relevant information The availability of such information from other sources The total cost of production, compared to the amount in controversy The total cost of production, compared to the resources available to each party The relative ability of each party to control costs and its incentive to do so The importance of the issues at stake in the litigation The relative benefits to the parties of obtaining the information Zubulake v. UBS Warburg (S.D.N.Y. 2003) ( Zubulake I ) 9

10 Why Do You Care? You don t want to be in these situations! Minimize production costs Secure litigation advantage 10

11 What You Should Do About It Understand what you have Understand what you do keep Understand what you must keep Draft a written policy 11

12 What You Should Do About It Understand what you have Data Mapping Find the right people IT Compliance Legal Understand your systems Where does ESI reside? Create a systems overview Critical role of outside counsel Establish and preserve privilege Offers substantial protection in case of a future challenge Practical Pointer: Consider broader information privacy and security review Substantial overlap of the first phase of both Substantial cost savings of doing both together 12

13 Understand what you do keep What You Should Do About It Records retention policies Backup policies 13

14 What You Should Do About It Understand what you must keep There is no general preservation obligation Regulated Industry? (Public Utility, Public Company, Financial Services, Health Care Provider) Other Obligations There is a clear obligation to preserve when litigation is reasonably foreseeable Fact-based analysis depends on the circumstances of each case Examples of when the obligation to preserve arises: Complaint filed Discovery request received Court order Subpoena served Government or regulatory agency institutes an investigation Accident occurs that resulted in serious injury Demand letter is received Cease and desist letter received List is non-exhaustive Applies to both defensive and affirmative litigation Duty to preserve supersedes all data retention and backup policies 14

15 What You Should Do About It Draft a written records retention and legal hold policy Policy should be in writing Proactive policy ensures consistent and efficient analysis Protects against after-the-fact challenges to process quality Great cover on regular retention and destruction of business records Great cover on reasonableness of preservation decisions Great cover on reasonableness and good faith of extent and effectiveness of litigation hold Win on reasonableness and gain credibility with the judge Minimize risk of sanctions If you have a policy communicate it and follow it! 15

16 What Should Your Policy Include? Regular records retention and destruction policies and practices Team to execute preservation analysis and legal holds Outside counsel Inside counsel Key business personnel IT Compliance 16

17 What Should Your Policy Include? Process for identification of: Information that must be preserved Relevance includes the existence, description, nature, custody, condition, and location of any documents or other tangible things and the identity and location of persons who know of any discoverable matter. There is no requirement to maintain multiple identical copies Subject matter, claims, counterclaims, defenses Standard: possession, custody, or control Potential custodians of that information Who is likely to have relevant information? Within the organization Agents of the organization Importance of input from both business and legal Potential locations of that information Use your data map! Individuals Internal storage locations External storage locations Providers you control Third-party data storage 17

18 What Should Your Policy Include? Process for determination of how much to preserve Need not take every conceivable step to preserve all conceivably relevant data Rule 26(b)(2)(C)(iii) provides for limiting discovery when 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. Rule 26(b)(2)(C)(i) provides that discovery may be limited if the discovery sought is unreasonably cumulative or duplicative, or is obtainable from some other source that is more convenient, less burdensome, or less expensive. Rule 37(f) restrains courts from imposing sanctions, absent exceptional circumstances 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. 18

19 What Should Your Policy Include? Preserving information is different from collecting information Rule 26(b)(2)(B) identifies certain ESI as not reasonably accessible because of undue burden or cost Disaster Recovery Backups Information on Legacy Systems Deleted Data May be able to shift the cost of producing such information to the opposing party Zubulake factors 19

20 What Should Your Policy Include? Directions to suspend data destruction immediately once the duty to preserve active files arises 20

21 What Should Your Policy Include? Process for dissemination of a legal hold A written hold notice is best Nature of proceeding or demand Types of information to be preserved Simple, but sufficient Nature of information to be preserved All potentially responsive documents paper and electronic Likely locations of responsive information Workstation Laptop PDA System The importance of the obligation Who to contact with questions Process for dissemination To all potential custodians To custodians of shared information IT (System information and individual devices) Operations Audit 21

22 What Should Your Policy Include? Process for documenting dissemination and follow up Track dissemination Master list of custodians and systems It s just easier! Use your data map Communicate directly with key custodians Track responses Document collection protocol Track follow up Track Changes 22

23 Document Collection and Review Necessarily determined on a case-by-case basis! 23

24 Take Advantage of Your Preparation and Process! Rule 26(f) conference among parties now must discuss and incorporate views on: any issues relating to disclosure or discovery of electronically stored information, including the form or forms in which it should be produced any issues relating to preserving discoverable evidence Advisory Committee Notes make clear that issues on the table include: Information systems at issue Individuals with knowledge Sources of ESI Information not reasonably accessible Whether either party requires metadata Local rules and state laws may reinforce these obligations 24

25 Take Advantage of Your Preparation and Process! You have much of this work done! Not a fire drill for overburdened IT and lawyers You have the answers on preservation and scope Much more likely to avoid a successful challenge 25

26 Take Advantage of Your Preparation and Process! Affirmatively limit the breadth and costs of e-discovery Limit the scope of preservation By doing work affirmatively, you can reasonably and defensibly constrain scope You can brush off requests for costly retention of backup tapes if information is otherwise preserved It is enormously costly to identify and review a potentially massive volume of information on backup tapes If necessary, you can either Agree to take periodic snap shots ; or Consider a request for cost shifting 26

27 Take Advantage of Your Preparation and Process! Affirmatively limit the breadth and costs of e-discovery Limit the scope of production By doing work affirmatively, you can reasonably and defensibly constrain scope Narrow scope of potentially responsive documents Limit time periods Limit number of custodians Request key word searching and appropriate key words Identify sources of information not reasonably accessible and remember Rule 26(b)(2)(B): Make clear that you will not produce absent a showing of good cause Make clear that you will shift the cost of production to your opponent 27

28 Take Advantage of Your Preparation and Process! Build credibility and trust If necessary, demonstrate credibility and trust to the court 28

29 THANK YOU Andrew C. DeVore DeVore & DeMarco LLP 99 Park Avenue, 16 th Floor New York, New York Phone: (212) Fax: (212)