Proposed Rules Suggest Changes to Electronic Discovery

Laura Zubulake, an equities trader specializing in Asian securities, sued her employer for gender discrimination and retaliation. She won a $29 million verdict.

A turning point in the case was the trial court’s ruling that the jury could infer that lost e-mails were unfavorable to the defendant company. Zubulake v. UBS Warburg, LLC., No. 02 Civ. 1243, 2004 U.S. Dist. Lesix 13574, WL 1620866 (S.D.N.Y., decided July 20, 2004).

The identification, retrieval, storage, analysis and delivery of electronic data is highly complex, and with it has come the need for laws to define the costly, time-consuming process so that discovery is full and fair for all parties.

Courts are just beginning to examine key questions involving what a company is obligated to store and for how long. To try to provide some guidance, the American Bar Association’s Federal Practice Task Force has made recommendations regarding the discovery rules that were approved in June by the ABA Standing Committee on Rules of Practice and Procedure. These changes will be presented in September to the Judicial Conference.

The U.S. Supreme Court would have until May 1 to approve them, and then Congress would have six months to veto or take no action on them, or they automatically become effective Dec. 1, 2006.

An important proposed change pertinent to electronic discovery deals with Federal Rule of Civil Procedure 26(f), which requires parties to discuss issues relating to the preservation, disclosure and privilege involving e-discovery before discovery even begins. In an effort "to limit the scope and burdens of discovery," the proposed new rule creates a two-tiered approach for identification of electronic records that are reasonably accessible.

On a motion to compel or a protective order, those documents that are not reasonably accessible would have to be identified by the responding party, and a judge could require the production of this information for "good cause" and "may specify terms and conditions for such discovery," Proposed Rule 26(b)(2).

The Sedona Conference, a group of judges, lawyers and academicians from around the country, hammered out 14 principles for managing electronically retrieved information and records that was initially published in 2003. The principles, meant to "complement the Federal Rules of Civil Procedure," deal with many of the same issues as the ABA Rules, including burden and cost shifting. For example, they provide that, "the reasonable costs of retrieving and reviewing electronic information for production should be borne by the responding party," an issue that has spawned much debate.

Zubulake dealt with the issue of whether the corporate defendant took all necessary steps to "oversee compliance" in guaranteeing that relevant data was both preserved and produced. The court held that once a party "reasonably anticipates litigation," it must suspend its routine document retention/destruction policy and put in place a "litigation hold" to ensure the preservation of all potentially relevant documents.

In fact, "Counsel must take affirmative steps to monitor compliance so that all sources of discoverable information are identified and searched," Id. This is a continuing duty throughout the litigation.

Generally, this rule does not apply to inaccessible back-up tapes – information that is saved but is not currently in sue by an organized and is separately stored in the event of a system problem or disaster. Back-up tapes are often written over. Because these systems are meant for storage, selective date retrieval from them can be very costly and difficult.

The Zubulake court found that if such back-up tapes are accessible (i.e., actively used for document retrieval), then such tapes would be subject to the litigation hold.

Additionally, the court held that counsel must communicate directly with the "key players" in the litigation – people who are identified in the party’s initial disclosure – regarding electronic data retention and, furthermore, that counsel must instruct all employees of the company to produce electronic copies of any relevant active files.

In Zubulake, the court found that in-house counsel for UBS had issued instructions to corporate employees for a litigation hold, but some employees still deleted relevant e-mails. Others simply never produced relevant information to counsel. Counsel had spoken with some, but not all, of the initial key players.

Because the defendant failed to produce the requested files pertaining to plaintiff’s discrimination and retaliatory discharge claims and failed to take adequate steps to safeguard the back-up tapes, the court held that defense counsel had failed in its duty to locate and timely produce relevant information. The court found that UBS had willfully deleted presumably relevant e-mails and sanctioned UBS by allowed the adverse inference of their contents to the jury. The court also ordered the defendant to pay all reasonable expenses, including attorneys’ fees, incurred by the plaintiff in connection with the motion to produce.

In an effort to protect parties against such sanction, the new proposed rule provides that, "Absent exceptional circumstances, a court may not impose sanctions under these rules 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." Proposed Rule 37(f).

Gregory Joseph, a New York lawyer and leader of the ABA, has written extensively about these new rules. He points out that the "exceptional circumstances" standard is extremely difficult to satisfy, appearing in only three places in the Federal Rules of Civil Procedure. He also is concerned, as am I, about a rule that appears to "encourage data destruction," and he notes that, "Parties routinely sued will accelerate the routine deletion of data."

The Sedona Conference decided that the sanctions for spoliation should be based on an intentional or reckless failure standard and a showing "that there is a reasonable probability that the loss of the evidence has materially prejudiced the adverse party."

Although Illinois courts have yet to address the issue of spoliation involving electronic discovery, the Illinois Supreme Court has addressed the issue regarding other evidence and has held that a two-pronged approach should be used to determine whether evidence should be preserved: 1) whether such a duty arises by agreement, contract, statute, special circumstances or voluntary undertaking, and 2) if so, whether a reasonable person should have foreseen that the evidence was material to a potential civil action. Dardeen v. Kuehling, 213 Ill.2d 329, 82 N.E.2d 227 (2004). That test can easily be translated to e-discovery issues.

It is clear that companies will have to invest money to collect, retrieve and organize electronic data, particularly when it is subject to litigation. As more and more cases hinge on e-discovery, many of the issues will have to be addresses on a case-by-case basis.

But the need is apparent for a close examination of the ABA rules and, ultimately, for state legislatures to proposed laws or courts to consider adopting local rules to deal with the new nuances involving e-discovery.

This will allow the courts and businesses to better prepare for increasingly complex discovery.