Publications: E-Discovery Update - September/October 2008

Additional Author: Heidi Goldwater, Litigation Technology Manager

To download the update, view the related file on the left.

The Duty to Preserve Electronic Documents and the Dire Consequences When a Company Fails to Do So

by James M. Carlson

In the best of all possible worlds, a company has a plan in place to preserve electronic and paper documents. It knows where its document databases reside. It also knows when it is safe to delete those documents. Most importantly, it has a clear document retention policy covering both paper and electronic documents. Such a policy must allow for a company to properly issue a “Litigation Hold” or “Preservation Notice” when litigation is likely. With all of these things in place, a company can properly retain potential evidence and protect against accusations of deleting relevant documents.

Alas, we do not live in the best of all possible worlds. When a company fails to preserve electronic documents, the consequences can be dire and result in adverse inferences, fines, and even a judgment against the party. This article demonstrates the perils of failing to preserve electronic documents.

Adverse Inferences

One of the dangers of a failure to properly preserve electronic documents is an adverse inference. An adverse inference is a negative assumption of fact or law made by the court based upon a party’s failure to produce relevant evidence. For example, a California Federal Court recently imposed an adverse inference against Oracle Corp. when the company failed to properly preserve potentially relevant e-mails.¹ In particular, the Judge ruled that Oracle’s president, Larry Ellison, failed to preserve his e-mails after the filing of the Plaintiff’s case. Because potentially relevant e-mails were deleted and not preserved, the court issued adverse inferences that will affect Oracle as the case continues. Frankly, Oracle was lucky. Oracle sent preservation notices to only 30 of its over 40,000 employees. Such lackluster attempts at preservation can severely injure a company and put it at risk for ruining its case. It can result in a court making an important conclusion regarding the case solely based on the failure to preserve evidence.

Fines

In addition, the failure to properly preserve electronic documents can also result in court fines. An Illinois Federal Court levied fines against a party who did not implement an appropriate document retention policy resulting in the destruction of potentially relevant documents. The court specifically noted that the individual with day-to-day management responsibility has the duty to ensure that a suitable document preservation program is in place. As the emphasis on digital documents in litigation continues to grow, courts will continue to fine parties who do not preserve such documents.

Default Judgments

Of course, the worst sanction possible is a judgment against a party, not based on the merits of the case, but based solely on the failure to properly preserve electronic documents. That is exactly what a California Federal Court did by entering a default judgment against parties who actively deleted relevant documents after being served with a complaint for a temporary restraining order. ² While the court had numerous opportunities to grant leniency to the party, it held fast believing that the failure to preserve documents can – and in this case should – result in a judgment against the party.

How to Avoid the Traps

There is no doubt that failure to preserve electronic documents is a real and growing problem. But these traps can be avoided. The first step is to ensure that there is a professionally drafted and fully encompassing document retention policy for both hardcopy and digital documents. Second, the company must follow the policy and provide for the issuing of litigation holds to preserve documents when it is suing or being sued. Such notices alert a company’s employees to immediately stop any planned deletions and keep the documents in case they are implicated in a pending litigation. Lastly, it is crucial to remember that preservation issues can actually help a company when the opposition makes these mistakes. Good, aggressive counsel will bring these issues directly to the judge. In fact, some courts will issue specific court orders requiring a party to preserve all evidence including e-mails, Blackberry messages, data on laptops, and other electronic information.³ Courts are simply no longer shy about requiring all types of electronic data to be preserved and maintained pending production. The failure to be prepared for preservation issues will result in a company being unnecessarily put at risk. The best advice is to be prepared rather than surprised.

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¹ Nursing Home Pension Fund v. Oracle Corp., 2008 WL 4093497 (N.D. Cal. Sept. 2, 2008).
² Advantacare Health Partners v. Access IV, 2004 WL 1837997 (N.D. Cal. Aug. 17, 2004).
³ ACS Consultant Co., Inc. v. Williams, 2006 WL 897559 (E.D. Mich. Apr. 6, 2006).

The Necessity of Retaining a Consulting and Testifying Expert for Complicated E-Discovery Issues

by Emily M. Dierberg

Most businesses generate massive amounts of electronically stored information. Today, e-discovery represents at least 35% of the total cost of litigation. Parties that fail to produce and plan for electronic discovery in a timely or appropriate manner risk high costs of discovery, inadvertent disclosure of privileged information, monetary sanctions and fines, and even losing their case. However, these results are avoidable through proper management of the discovery process and the early identification of potential challenges and related solutions. To avoid discovery related problems and costs, best practices require engaging e-discovery experts to assess and implement an e-discovery strategy at the outset of litigation.

Experts are retained to serve in one of two capacities: either as a consultant or as a testifying witness. The ultimate goal of a testifying expert is to educate the jury, much like a teacher. All conversations with a “testifying expert” however are subject to discovery. Federal Rule of Civil Procedure 26 makes it clear that documents and information disclosed to a testifying expert in connection with his testimony are discoverable by the opposing party, whether or not the expert relies on the documents and information in preparing his testimony. The danger here is obvious. What a party might have believed was a protected discussion is not. Even if that discussion involved the testifying witness’ thoughts as to the strength of the entire lawsuit, it would still be discoverable by the opposition.

In contrast, attorneys and clients can “consult” with an expert, under the protection of a privilege. Under Federal Rule 26, ordinarily an opposing party may not discover facts known or opinions held by an expert who has been retained in anticipation of litigation or to prepare for trial and who is not to be called as a witness.

Parties should therefore engage both a testifying and consulting expert when facing potential litigation. That way they do not risk disclosing sensitive information to their testifying expert and ultimately to the opposing party through discovery. In contrast, the consulting expert can identify all relevant electronically stored information after a full and up-front disclosure, without fear of discovery. Only with all the relevant knowledge of potentially discoverable information can the consultant then recommend an appropriate discovery plan and strategy.

Also under Federal Rule 26, parties to litigation must outline a discovery plan in a pre-trial conference which includes any issues about discovery of electronically stored information. Thus, regardless of the degree to which parties consult an expert, it’s crucial to make e-discovery decisions early in the litigation process. Then, the consulting expert can instruct how to proceed with a discovery strategy, what questions to ask at the Rule 26 conference, and what types of agreements the parties should seek at the conference. This also gives the expert plenty of time to review the available e-discovery. If e-discovery issues are not discussed at the Rule 26 conference, most courts will determine that parties have waived any objections to producing information or producing it in a certain form. Courts are also generally reluctant to allow additional experts at a late point in the litigation, seeing this as an abuse of the fact discovery system.

Retaining both a consulting and testifying expert at the outset of litigation is thus one of the safest and most essential steps in any case. Additionally, drafting the experts’ engagement letters at that time ensures that the experts' goals are aligned with yours. The experts can then set the tone of the litigation, ensure that discovery goes smoothly, and ultimately help achieve a successful outcome.

Basic Steps to Preventing Metadata Problems

By Nile N. Park

For those of you who are new to E-Discovery issues, you can take basic steps to prevent metadata problems. Your company should be concerned with preventing the disclosure of metadata to your competitors or other outside parties. Just by e-mailing a document to your competition, you may be giving them information you never intended to disclose. This article seeks to protect you from sending more than you intended when you send an e-mail beyond your company’s servers.

The simplest step is to become aware of metadata.¹ In short, metadata is information about the electronic files themselves. Metadata includes information about the time and date of creation as well as the access history of certain documents. The difference between producing a paper document and an electronic document is largely that the electronic version can include the metadata. For instance, if you e-mail a digital copy of a word processing or spreadsheet file to an outside party, then they would receive not only the content of the document but also the related metadata. As such, the outside party would then be able to determine when the document was created, when it was accessed and by whom, and they may even be able to determine your edits to the content of the file. Many are shocked by how much additional information is included when sending a digital file via e-mail. Imagine the potential damage if a competitor can uncover your previous edits to a written letter, memorandum, or purchase order.

Rather than facing such a disclosure, it makes more sense to manage and protect against unintentional metadata disclosures. Knowing what metadata is present is the first step in preventing inadvertent and ill planned metadata disclosures. Initially avoiding metadata is an easy way to prevent metadata problems.² For example, in Microsoft Word, common metadata problems arise from automatically recording information under file properties or using features such as track changes and comments.³ You can prevent inadvertently disclosing metadata by deleting information under properties or avoiding use of these features. However, it is sometimes impractical to avoid creating metadata. Thus, an essential step toward managing metadata is implementing scrubbing software such as Metadata Assistant and Workshare into your practice. Of course, all of these programs should be a part of a company’s document retention policy.

Regardless, it is important to note that while the above programs are vital tools for managing metadata, they are not necessarily foolproof solutions. Therefore, familiarize yourself with common metadata traps.⁴ Furthermore, when the consequences of metadata problems become particularly acute, such as when electronically transmitting sensitive documents or during contract negotiations, you may want to consider e-mailinging a PDF file.⁵ Depending on the number of documents, this may provide the safest method of electronically transmitting materials without much cost. These simple steps can go a long way toward protecting your clients, the firm, and yourself from embarrassment and liability. Regardless, the lesson is clear – be careful what you e-mail as it may contain more information than you think.

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¹ Richard Raysman et al., Metadata and Attorney Ethics, N.Y. PRAC. SKILLS COURSE HANDBOOK SERIES, July 8 & 30, 2008 (defining “metadata” as “information about a particular data set that describes how, when and by whom it was collected, created, accessed or modified and how it was formatted”).
² David Hricik & Chase Edward Scott, Metadata: The Ghosts Haunting E-Documents, 82 FLA. B. J. 32 (2008) (providing a good overview on avoiding creation of metadata on Microsoft Office programs).
³ Id.
⁴ Id. (discussing possible legal consequences of inadvertently disclosing metadata). See Bradley H. Leiber, Applying Ethics Rules to Rapidly Changing Technology: The D.C. Bar’s Approach to Metadata, 21 GEO. J. LEGAL ETHICS 893, 895-96 (“For example, a lawyer who is drafting a pleading could insert comments regarding litigation strategy to facilitate communication between herself and another attorney working on the matter. If such information was inadvertently sent to opposing counsel and viewed, it could harm the client’s case.”)
⁵ See Daniel J. Siegel, Mind the Metadata, 44 TRIAL 62, 63 (2008).

The Future of Searching ESI

By Steffany L. Hreno

The long-standing practice of using attorney “searches” to sort through vast collections of electronically stored information (“ESI”) to identify relevant documents and information was, until recently, widely accepted by the courts and legal community alike. In the wake of opinions such as Victor Stanley, Inc. v. Creative Pipe, Inc., et al., 2008 WL 2221841 (D. Md. May 29, 2008) and United States v. O’Keefe, 537 F. Supp. 2d 14 (D.D.C. 2008), however, the effectiveness of keyword searches and the ability of attorneys to develop and execute them has become the subject of increasing judicial scrutiny.

Magistrate Judge Paul Grimm’s pivotal opinion in the Victor Stanley case provides the most instructive guide to date as to how electronic discovery searches should be conducted in order to avoid and successfully defend against any challenges that may arise. The defendants in Victor Stanley produced 165 documents they later claimed were irrelevant, privileged, and inadvertently disclosed. When the court undertook a close examination of their retrieval and production of ESI, however, it found that the defendants’ electronic searches relied on 70 unidentified keywords developed solely by two of their own attorneys. The court identified numerous problems with the defendants’ “regrettably vague” explanation of their search protocol. Setting forth what all attorneys and corporate litigants should regard as a checklist for future hearings regarding ESI searches, it noted that the defendants did not articulate any of the following information:

• Which keywords were chosen and how they were used to search the electronically stored documents;
• The rationale for selecting those 70 particular keywords or phrases;
• Whether or not the individuals who selected these keywords were qualified to design effective and appropriate searches; and
• To what degree the reliability of the search results was analyzed through quality-assurance testing such as sampling.

As a result of the defendants’ wholesale failure to demonstrate the reasonableness of their search methodology, the Victor Stanley Court held that they had waived their rights to all ESI produced, relevant or irrelevant, privileged or non-privileged, inadvertently or purposefully disclosed.

Lessons from Victor Stanley

1. Expect Challenges to ESI Search Protocols

Gone are the days in which an attorney’s assurance of reliability is a valid defense to a discovering party’s challenge to the producing party’s methodology for searching and retrieving ESI. The Victor Stanley defendants failed not because they offered inadequate justification to their search protocol, but because they provided the court with no justification at all.

2. All Keyword Searches are Not Created Equal

Given the varying degrees of complexity in keyword searches, litigants and their attorneys should thoroughly evaluate what type of search protocol best fits their particular situation. Selection of the appropriate technique requires advance planning by people with expertise in the design of such methodologies. All parties should, at a minimum, follow the practices and recommendations of the Sedona Conference’s Best Practices Commentary on the Use of Search and Information Retrieval Methods in E-Discovery and the federal government’s Text Retrieval Conference legal track initiative. Both provide guidance in determining the reliability and reasonableness of any search methodology used in the production of ESI.

Although the Victor Stanley Court stopped short of expressly engrafting the requirements of Federal Rules Evidence 702 into electronic-discovery, a growing body of case law suggests that the complexity of keyword searches in the retrieval and production of ESI is a practice best left to experts. See, e.g., Equity Analytics, LLC v. Lundin, 248 F.R.D. 331, 333 (D.D.C. 2008) (“[D]etermining whether a particular search methodology, such as keywords, will or will not be effective certainly requires knowledge beyond the ken of a lay person (and a lay lawyer)”; In re Seroquel Prods. Liab. Litig., 244 F.R.D. 650, 660 n.6, 662 (M.D. Fla. 2007). As Judge Facciola declared in U.S. v. O’Keefe, “For lawyers or judges to dare opine that a certain search term or terms would be more likely to produce information than the terms that were used is truly to go where angels fear to tread.”

3. Document Retention Policies Are Essential to Successful E-Discovery

Despite its initial costs, clients will benefit greatly from the creation of a well thought out, reasonable, and strictly adhered to document retention policy. Such a policy should clearly delineate the company’s position on how documents are to be maintained, where, and in what format. By establishing a set protocol, companies can better avoid the pitfalls of the Victor Stanley defendants. Key to this success is the Sedona Conference’s fourth practice point, which advocates that parties “perform due diligence in choosing particular information retrieval product or service from a vendor.” In one notable case, a plaintiff who produced 3000 e-mails independent from their attachments due to software incompatibility with its e-discovery vendor was ordered to bear hundreds of thousands of dollars in costs to reproduce the e-mails correctly. See PSEG Power New York, Inc. v. Alberici Constructors, Inc., 2007 WL 2687670 (N.D.N.Y. Sept. 7, 2007).

Time consuming and expensive though they may be, efficient document retention policies and reliable ESI production protocols have become increasingly necessary to avoid the risk that a court might deem an inadvertent disclosure to be a waiver. In the wake of cases like Victor Stanley, one thing is certain: the production of ESI is no longer an issue that can be dealt with in an ad hoc manner only after the onset of litigation.

Not So Safe Harbor: Why Rule 37(e) Does Not Guarantee Protection from Sanctions

By Jessica K. Thomas

With the 2006 amendments to the Federal Rules of Civil Procedure, a party is entitled to a safe harbor from sanctions where the electronic information is “lost as a result of the routine, good faith operation” of an electronic information system. Federal Rule of Civil Procedure 37(e) was thus drafted to offer direction to the court regarding sanctionable conduct against a party for its failure to preserve electronic information. Rule 37(e) states as follows:

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 electric information system.

Fed.R.Civ.P. 37(e).

The Advisory Committee Notes to this subdivision state that what constitutes good faith is factually determinative on a case by case basis under the specific circumstances of that case. The Advisory Committee Notes also lend guidance as to what constitutes “routine, good faith operation of an electronic information system:”

Rule [37(e)] applies to information lost due to the routine operation of an information system only if the operation was in good faith. Good faith in the routine operation of an information system may involve a party’s intervention to modify or suspend certain features of that routine operation to prevent the loss of information, if that information is subject to a preservation obligation…Among the factors that bear on a party’s good faith in the routine operation of an information system are the steps the party took to comply with a court order in the case or party agreement requiring preservation of specific electronically stored information.

The plain language of Rule 37(e) states that a court may not impose sanctions “under these rules.” Moreover the Advisory Committee Notes specifically point out that nothing in this rule is meant to affect “other sources of authority to impose sanctions or rules of professional responsibility.”

The recent decision of Nucor Corp. v. Bell, 251 F.R.D. 191 (D.C. S.C. 2008) squarely addresses this issue. In Nucor, Plaintiff sought sanctions against Defendant for spoliation of electronic evidence. The basis of Plaintiff’s motion was that a former employee of the defendant negligently and/or intentionally destroyed evidence on his laptop and discarded a SanDisk device with relevant data. In support of its claim, Plaintiff alleged that Defendants spoliated data on the laptop in three ways: (1) intentionally using the laptop computer after litigation commenced, thereby causing the loss of relevant data; (2) intentionally deleting and overwriting relevant data (otherwise known as “wiping” data); and (3) its expert attempting to create additional forensic copies of the laptop hard drive, which led to its failure. 

The District Court for Charleston Division of South Carolina noted that sanctionable spoliation of evidence occurs only when three prerequisites are met. First, the altered or destroyed evidence must have been relevant to the litigation. Second, the party must have been under a duty to preserve the evidence at the time it was altered or destroyed. Third, the spoliating party must have acted with the requisite level of intent, which varies depending on the sanction imposed.

The Court held that the defendants engaged in sanctionable spoliation with respect to both the laptop and the SanDisk device. As to the laptop, the Court found that the defendants spoliated evidence by continuing to use the laptop, but concluded that Plaintiff had not met its burden with respect to its data wiping and expert destruction allegations. Defendants argued that Federal Rule of Civil Procedure 37(e) prevented the Court from imposing any sanction for loss of data on the laptop. However, the Court noted that Rule 37(e)’s plain language states that it is only applicable to sanctions imposed under the Federal Rules of Civil Procedure and “is not applicable when the court sanctions a party pursuant to its inherent power.” The Court ordered the sanction of an adverse inference charge as an adequate sanction for the improper conduct and to level the evidentiary playing field.

As demonstrated by the plain language of Rule 37(e), the Advisory Committee Notes, and the case law described above, Rule 37(e) is meant only as a guideline to the Court as to what sanctionable conduct should be under the Federal Rules of Civil Procedure. Rule 37(e) cannot limit the Court’s inherent power to sanction a party and dire consequences may still result from the failure to properly preserve electronically stored information.

Tech Corner: Preserving Evidence by Ignoring the "On" Button

By Heidi Goldwater

You have just started working on a new case and a client or adverse party sends you as part of a discovery request a PC, laptop, removable hard drive or USB jump drive. Let us refer to all of these as “hardware.” What do you do?

First, create a detailed and accurate Chain of Custody document. Include information such as:

• How the hardware was obtained
• Who currently possesses it
• Person that received the hardware
• Date person received the hardware
• Record when the hardware was turned over to a forensic consultant or litigation technology staff member and stored in fireproof data safe

You will need to maintain this document and update it each time the hardware changes possession. Additionally attach copies of any carrier shipping documents from FedEx, UPS, USPS or messenger to the document. This creates clear evidence concerning the integrity and authenticity of the data contained on the hardware.

Next, do not attempt to view the data yourself. Do not let your curiosity get the best of you. The hardware contains files with metadata which must be preserved. For instance, metadata detailing the “last file access date and time” or “last modified date and time” will be altered simply by turning on the hardware. In fact, just plugging in the hardware will alter the needed metadata. Once altered, it is near impossible to recover that metadata. Instead, the best option is to get a professional to make a full copy of the hardware. A reputable forensic consultant can take a pristine image of the hardware. You can then request a copy of the forensic image of computer or hardware data to review. By doing so, the metadata is preserved.