DISCOVER E-DISCOVERY BEFORE IT DISCOVERS YOU. By Christine P. Tabbert 1 Fasken Martineau

Transcription

1 DISCOVER E-DISCOVERY BEFORE IT DISCOVERS YOU By Christine P. Tabbert 1 Fasken Martineau The electronic age of communication has brought with it a number of unique challenges for litigation counsel and their clients. The report of the Task Force on the Discovery Process in Ontario in November 2003 made a number of recommendations for discovery reform. The report included a recognition that the proper preservation, review and production of electronic documentation is a challenge that has yet to be met by the legal profession in Ontario. A sub-committee of the Discovery Task Force focused on issues arising in relation to ediscovery. The recent release of Guidelines for the Discovery of Electronic Documents in Ontario (the Guidelines ; which are attached hereto) have made clear what those who have followed the case law both here and in the United States already knew: the now commonplace use of electronic mail, word processing, databases, spreadsheets and the Internet has created new obligations and problems for counsel and their clients. It is not hyperbole to state that the failure to meet these obligations can be catastrophic to the outcome of a litigation proceeding. Recent case law has highlighted the need for a coherent and thoughtful approach to the documentary discovery phase of litigation in light of the inevitable existence of electronic documents in virtually every lawsuit. Perhaps the most widely discussed case in this regard is the fifth decision in Zubulake v. UBS Warburg 2. In Zubulake V, the court sanctioned the defendant (UBS Warburg) for failing to properly preserve and produce electronic documents despite repeated warnings by both in-house and outside counsel to UBS Warburg that it had 1 With thanks to Robert S. Harrison and Berkley D. Sells for their insightful input into this paper.

2 - 2 - obligations to preserve evidence. 3 The court s finding that both the defendant and counsel failed in their duty to ensure that electronic documents were properly preserved and produced during the course of the case is a strong warning to litigation lawyers everywhere that the current environment of electronic communication brings with it new obligations that cannot be ignored or avoided. In the Zubulake V decision, the court addressed the obligation on counsel to ensure, by providing clear instructions to clients, that relevant electronic information is preserved, and the client s obligation to heed such instructions from counsel. The court found that both counsel and the client failed in these obligations, which resulted in prejudice to the plaintiff Zubulake: The conduct of both counsel and client thus calls to mind the nowfamous words of the prison captain in Cool Hand Luke: What we ve got here is a failure to communicate. Because of this failure by both UBS and its counsel, Zubulake has been prejudiced. As a result, sanctions are warranted. 4 This failure to communicate was fatal to UBS Warburg s defence. The sanctions levelled against UBS Warburg included an adverse inference instruction to the jury hearing the case with respect to s deleted after a certain date, and in particular with respect to s that were irretrievably lost when UBS Warburg s backup tapes were recycled. As a result, what had been described by the court as a relatively routine employment discrimination dispute ended very badly for UBS Warburg, with the jury ultimately awarding Zubulake U.S.$29 million, over twothirds of which was punitive damages. 2 Zubulake v. UBS Warburg LLC, 229 F.R.D. 422 (S.D.N.Y. July 20, 2004) [hereinafter Zubulake V ]. 3 The court sanctions also arose as a result of the intentional, albeit perhaps in some instances unwitting, destruction of certain relevant documents ( s) by the defendant s employees. 4 Supra, note 1, at 424.

3 - 3 - Of particular interest is the court s finding in Zubulake V that counsel is responsible for coordinating her client s discovery efforts and has certain duties in relation to the documentary discovery process: A party s discovery obligations do not end with the implementation of a litigation hold - to the contrary, that s only the beginning. Counsel must oversee compliance with the litigation hold, monitoring the party s efforts to retain and produce the relevant documents. Proper communication between a party and her lawyer will ensure (1) that all relevant information (or at least all sources of relevant information) is discovered, (2) that relevant information is retained on a continuing basis; and (3) that relevant non-privileged material is produced to the opposing party. 5 The court found that counsel for UBS Warburg failed in a number of important respects to ensure that documents were properly preserved and produced, notwithstanding that UBS Warburg s counsel - both in-house and outside - repeatedly advised UBS of its discovery obligations. 6 The court found that having provided these warnings to UBS Warburg, its counsel was still not entirely blameless : 7 First, neither in-house nor outside counsel communicated the litigation hold instructions to Mike Davies, a senior human resources employee who was intimately involved in Zubulake s termination. Second, even though the litigation hold instructions were communicated to Kim [another UBS Warburg employee], no one ever asked her to produce her files [these files were finally produced after the discovery process had been ongoing for approximately two years]. And third, counsel failed to protect relevant backup tapes; had they done so, Zubulake might have been able to recover some of the s that UBS employees deleted. 8 5 Ibid. at Ibid. at Ibid. 8 Ibid.

4 - 4 - In other words, at least in the United States, it may be inferred that counsel are not merely responsible for alerting their clients to the obligation to preserve and produce the appropriate documents in a lawsuit. They are also responsible for the oversight of the entire production process, including ongoing monitoring of the preservation of documents so as to ensure that proper preservation actually occurs. The need to anticipate and control the electronic discovery process by virtue of the problems that can arise from the unique nature of electronic information (including its sheer volume) are well-illustrated in Zubulake V. The Guidelines refer to controlling the scope of e- discovery and using electronic tools and processes, such as data sampling or searching, to satisfy obligations to produce relevant electronic documents in good faith. While the Guidelines are explicitly not intended to serve as rules that can be enforced directly, but rather as an appropriate framework to address how to conduct e-discovery, it is difficult to envision that these best practices will not be considered by the courts as at least strongly persuasive in determining the e-discovery obligations of parties, particularly in those cases where the parties are unable to reach agreement on the scope of e-discovery or the method by which to approach the review and disclosure of voluminous evidence. As the New York Times noted in a June 2005 article 9, things went as poorly for Morgan Stanley as for UBS Warburg in Zubulake V in a recent Florida case against the bank by corporate raider Ronald O. Perelman s company Coleman (Parent) Holdings, Inc. 10 During the discovery process in that case, the court found that Morgan Stanley failed to preserve many e- 9 T. L. O Brien, How a Corporate Raider Became an Unlikely Giant Slayer The New York Times (5 June 2005) SECT3. 10 Coleman (Parent) Holdings, Inc. v. Morgan Stanley & Co., Inc., Case No CA005045XXOCAI (Fla. Cir. Ct. March 1, 2005) [hereinafter Morgan Stanley ].

5 - 5 - mails and failed to produce all s that it was required to produce as a result of an earlier court order: The failings include overwriting s after 12 months; failing to conduct proper searches for tapes that may contain s; providing a certificate of compliance known to be false when made and only recently withdrawn; failing to timely notify CPH [the plaintiff Coleman (Parent) Holdings, Inc.] when additional tapes were located; failing to use reasonable efforts to search the newly discovered tapes; failing to timely process and search data held in the staging area or notify CPH of the deficiency; failing to write software scripts consistent with the Agreed Order; and discovering the deficiencies only after CPH was given the opportunity to check MS & Co. s [Morgan Stanley & Co. s] work and the MS & Co. s attorneys were required to certify the completeness of the prior searches. 11 Like Zubulake V, the court in Morgan Stanley also placed at least a portion of the blame for the botched discovery process at counsel s feet: [t]hroughout this entire process, MS & Co. and its counsels lack of candor has frustrated the Court and opposing counsel s ability to be fully and timely informed. 12 Morgan Stanley s attempts to justify its failings during the discovery process did not convince the court that the sanctions sought by the plaintiff should not be levied. 13 The court directed that a statement of facts, which was essentially a recitation of Morgan Stanley s failures in the discovery process, be read to the jury during the plaintiff s case at trial. The court ordered that the statement of facts was conclusive, and no instruction was to be given to the jury regarding inferences to be drawn from these facts. The case ultimately ended in a $1.45 billion order against Morgan Stanley, $850 million of which consisted of punitive damages. Morgan Stanley is appealing. 11 Supra, note 9, at para Ibid. at para The New York Times described the attempted justification as a carnivalesque series of events that [Morgan Stanley] said had led to a sudden unearthing of the material. Supra, note 3.

6 - 6 - Notwithstanding her earlier statement impugning both Morgan Stanley and its counsel, Judge Maass (who made the order concerning the statement of facts and presided over the trial) later stated in court when entering her order regarding the statement of facts that she: did not intend to imply in that order that Kirkland & Ellis [Morgan Stanley s counsel] is now sort of the lone renegade who perpetrated what is almost a fraud on the court. It was Morgan Stanley. The order is replete with references by Morgan Stanley personnel of misrepresentations. Morgan Stanley finds itself in this position because of what Morgan Stanley has done. 14 These comments arose as a result of Morgan Stanley s eleventh-hour attempt to dismiss its counsel of record on the case, which the judge saw as a further stalling tactic. Although Judge Maass comments tend to minimize counsel s role in the events that she criticized, the case serves as another important warning about the perils associated with e-discovery. One of the important lessons for the legal profession to take from the case is that there is a growing obligation on counsel to ensure, in a meaningful and thorough manner, that clients take active steps to preserve and produce electronic evidence. While the court in Morgan Stanley found that many of the bank s actions were carried out knowingly, deliberately and in bad faith, and thus the facts of the case may be seen as anomalous by some, Morgan Stanley nonetheless highlights that the spoliation of evidence can result in the imposition of severe sanctions by the court that can lead to devastating consequences for the outcome of the case. The spoliation in this case included overwriting e- mails and failing to preserve back-up tapes in a fashion that ensured that they could be readily located and that information on such tapes could be readily searched and produced. Those with even a passing familiarity with technology will know that such problems as overwriting s 14 As she was quoted in the New York Times. Supra, note 3.

7 - 7 - can occur as easily as the press of a wrong button on a keyboard. It thus becomes crucial that counsel gain familiarity with technology in order to properly advise clients concerning the potential spoliation of evidence. Such advice is particularly meaningful for clients in light of the Ontario Court of Appeal s ruling in Spasic Estate v. Imperial Tobacco Ltd. 15 that spoliation can constitute an independent tort. As the Discovery Task Force notes in the Guidelines, many lawyers have yet to fully recognize the impact of technology on the discovery process, and the overall orientation of the profession remains toward printed documents. It is doubtful that before Zubulake V and Morgan Stanley, many lawyers would have viewed it as their obligation to monitor a client s efforts to preserve electronic documents in the manner suggested by the court in the Zubulake V decision. Indeed, as the Discovery Task Force also noted in the Guidelines, many lawyers remain unfamiliar with their clients obligations to preserve and produce electronic documents, and with the technology available to retrieve, search and produce them in a cost-effective manner. Part of the reticence of counsel to embrace electronic documents rather than printed ones undoubtedly relates to a lack of understanding of the technology by which electronic documents can be created, located, stored and ultimately shared. The continuing duties of counsel regarding preservation and production of electronic data are different from those same duties in relation to traditional paper documents because of the very nature of electronic information. Counsel must have a good working knowledge of technology and the ways in which information may be stored electronically in order to properly advise their clients about preserving this information. Counsel also need to be aware of the unique challenges of 15 Spasic Estate v. Imperial Tobacco Ltd. (2000), 49 O.R. (3d) 699 (C.A.).

8 - 8 - preserving, reviewing and producing electronic information in order to properly advise clients about the potential costs that relate to recovering, preserving and producing electronic information. The volume of electronic information and the technical nature of recovering it can generate substantial costs (for review of the information by counsel) and disbursements (for consultants to recover, preserve and search the information). The obligation to preserve and produce electronic documents arises not as a result of the commencement of litigation itself, but on the reasonable anticipation of litigation. The Guidelines recommend that as soon as litigation is contemplated or threatened, parties and their counsel take immediate steps to consider what electronic data and information exists and how it may best be located and preserved if it can reasonably be expected to be relevant to litigation. Recent cases suggest that this obligation is a broad one that extends to a wide variety of data sources. In CIBC World Markets v. Genuity Capital Markets 16, the plaintiffs sought Anton Pillar-style relief in order to preserve electronic evidence, and the responding party voluntarily undertook to allow the plaintiffs to image and store the defendants electronic data. The plaintiffs were granted access, for the purposes of imaging and storing in a safe manner, to the contents of computers, Blackberries and other types of similar electronic devices of every nature and kind as to which the defendant have in their possession, power, ownership, use or control, directly or indirectly. The plaintiffs were given access to such devices whether they were stored at the office or in homes of employees, whether used by other family members or not. Counsel also agreed to jointly contact all independent server providers to request their cooperation in preserving any relevant material on their servers. 16 CIBC World Markets Inc. v. Genuity Capital Markets, [2005] O.J. No. 614 (S.C.J.) [hereinafter CIBC World Markets ].

9 - 9 - The voluntary preservation of electronic evidence in the CIBC World Markets case is the kind of cooperation between parties and their counsel that the Guidelines appear to contemplate. The Guidelines suggest that in contemplation of litigation, parties should immediately take steps to preserve relevant electronic documents. Parties should place each other on notice with respect to preserving electronic documents as early in the process as possible. Parties should discuss the need to preserve or produce meta-data as early as possible. The Guidelines further recommend that counsel meet and confer, as soon as practicable and on an ongoing basis, regarding the location, preservation, review and production of electronic documents and seek agreement on the scope of each party s rights and obligations with respect to e-discovery. Implementation of the Guidelines requires more than a passing familiarity on the part of counsel with the technology used to generate electronic data and information. Counsel must know what to ask for, and how it can be located, preserved, protected and ultimately produced if necessary. Zubulake V and Morgan Stanley suggest that the courts will expect counsel to adapt to the proliferation of electronic documents. The problems that can arise as a result of the unfamiliarity of counsel with technology have yet to be fully considered by Canadian courts. Several cases have addressed some of the issues that can arise from a lack of knowledge about technology on the part of counsel. For instance, the recent decision in National Bank Financial Ltd. v. Potter 17 highlights the need for counsel to be sensitive to issues of privilege and privacy that arise as a result of the sheer volume of electronic documents that may exist and be relevant to a particular action. In that case, Knowledge House Inc. ( KHI ) and other parties brought an application for a stay in relation to abuse of process and breach of solicitor-client privilege. The 17 National Bank Financial Ltd. v. Potter, [2005] N.S.J. No. 186 (S.C.).

10 court found that solicitors for National Bank Financial Ltd. ( NBFL ) did not properly respect solicitor-client privilege and ordered the removal of counsel for NBFL. The case arose from unusual facts. When KHI went bankrupt in 2001, its trustee in bankruptcy sold KHI s servers, which contained a substantial volume of solicitor-client communications, to one of the defendants, Mr. Courtney, without having deleted any of the e- mails on the server. Mr. Courtney was required under the contract to store the data from all of the hardware. It later came to light that Mr. Courtney was duplicitous in purchasing the servers while knowing full well what he was after ; namely, access to the electronic data on the servers, including , for his own use. After Mr. Courtney purchased the servers, NBFL s solicitors sought to obtain copies of Mr. Courtney s s in anticipation of litigation. decision, the court noted: The KHI servers were eventually turned over to NBFL s solicitors. In its It is perhaps an understatement to say the evidence suggests almost all of the solicitors involved in these proceedings were largely computer illiterate. Even after [counsel for NBFL] learned Mr. Courtney had the KHI servers he thought what he would be getting as a result of his demands for the servers was a pile of paper. 18 The court found that from the time that the solicitors for NBFL received the servers forward, the actions of all of the NBFL solicitors involved came into question. The solicitors printed off the contents of the mailbox of one of the defendants, Mr. Potter, and did not inform him that they had access to his entire account, including privileged documents. The s were then circulated to a number of counsel. Some of the privileged information was used to amend 18 Ibid. at para. 24.

11 pleadings. In respect of the review by NBFL counsel of many of the privileged documents on the KHI servers, the court found that: NBFL solicitors attributed to themselves more power than would have been granted even under the terms of an Anton Pillar order. This is quite startling when you consider that an Anton Pillar order is perhaps the most severe civil law power of search and seizure available to any party in civil litigation. 19 Although the court declined to order a stay, it did find that [t]he actions of NBFL solicitors verge on the threshold of warranting a stay. Instead, the court ordered the removal of all counsel for NBFL who were or might have been privy to privileged solicitor-client communications. The court was of the opinion that all NBFL solicitors should have known or expected there would be privileged information on the server. A second issue that arose as a result of NBFL s access to the KHI servers related to non-privileged private communications on the servers. Such information had been circulated to other counsel by counsel for NBFL. The court found it was improper for counsel for NBFL to circulate private communications on the server if they were not relevant. In other words, there was an obligation on counsel not to produce irrelevant information that it had received from Mr. Courtney on the servers: NBFL knew they were in possession of accounts belonging to people who would under normal circumstances have an expectation of privacy. NBFL knew those people had no idea or forewarning as to the fact NBFL had come into possession of those s. To reproduce and distribute the s without regard to those issues is at a minimum sharp practice worthy of sanction and at worse an abuse of process. 19 Ibid. at para. 78.

12 To allow NBFL solicitors to disseminate non-relevant communications, as they have done here risks bringing the administration of justice into disrepute. 20 The result in National Bank Financial Ltd. v. Potter may be seen by some to be less harsh than Zubulake V and Morgan Stanley in that there were no adverse inferences or facts directed to the trier of fact that led to a liability finding or a damages award. However, NBFL was deprived of its choice of counsel. NBFL no doubt incurred significant cost in retaining new counsel given that the parties were involved in several related actions. Moreover, the amendments to NBFL s pleading that were made after the privileged information was obtained were struck. The message is clear: the courts in Canada will view issues arising from inappropriate preservation or production of electronic documents just as seriously as the courts in the United States. In itrade Finance Inc. v. Webworx Inc. 21, the plaintiff obtained a wide reaching Anton Pillar order compelling the defendants to, among other things: give immediate and effective access to, and inform plaintiff s counsel of the location of, any computer systems, stored information and computer equipment ( computer materials ) that are at any location (paragraphs 14, 18 and 19 of the Order); refrain from destroying, altering, modifying, defacing, removing, concealing, tampering with, transferring, or parting with any computer materials (paragraph 20 of the Order. 22 One of the defendants, Peter Boulter, failed to disclose a laptop computer during the enforcement of the Anton Pillar order, and thereafter used computer software known commercially as 20 Ibid. at para. 136 and itrade Finance Inc. v. Webworx Inc., [2005] O.J. No. 1200, itrade Finance Inc. v. Webworx Inc., [2005] O.J. No (S.C.J.). Fasken Martineau was counsel for the plaintiff. 22 Ibid. at para. 10.

13 Evidence Eliminator to wipe files from that laptop computer, thereby destroying evidence that the court had ordered Mr. Boulter to preserve. The plaintiff moved for a finding that Mr. Boulter was in contempt of court for breaching the order. The sanction for the destruction of electronic evidence in the face of the Anton Pillar order was an order striking Mr. Boulter s pleading without leave to amend. The plaintiff subsequently obtained default judgment against Mr. Boulter. The case serves as an example of the relief a court will grant where a party fails to preserve or tampers with electronic evidence. It also illustrates that clients must be advised, early in the litigation process, of the potential adverse consequences of failing to meet their discovery obligations, and in particular, their e-discovery obligations. It is apparent from the case law to date that, as the court in National Bank Financial Ltd. v. Potter concluded, when it comes to privileged communications, a different set of rules must be developed to meet the current realities of the modern practice of law. 23 It is not only privileged communications that necessitate a different set of rules. The Guidelines strongly suggest that the nature of electronic information requires a more proactive approach to discovery than the traditional way in which counsel have dealt with documentary discovery. While the Guidelines are not intended to be enforceable directly, the American case law, and in particular the Zubulake V decision, leads one to the inevitable conclusion that courts will likely impose a high burden on counsel to ensure that electronic evidence is appropriately preserved and produced where it is relevant to the proceeding. In its postscript, the court in Zubulake V noted: 23 Supra, note 17 at para. 97.

14 The subject of the discovery of electronically stored information is rapidly evolving. When this case began more than two years ago, there was little guidance from the judiciary, bar associations or the academy as to the governing standards. Much has changed in that time. 24 It is somewhat startling that notwithstanding the lack of governing standards for counsel prior to the Zubulake V case, counsel was held partially accountable for the client s failings in preserving and producing s. Now that we have best practices in the form of the Guidelines, it is hard to imagine that the courts here in Canada will not be equally stringent. Indeed, much has changed. 24 Supra, note 1 at 439.