— Advisory Committee on Civil Rules of the Judicial Conference of the United States



While some believe the rules could help clarify the parameters of e-discovery, others, particularly plaintiff lawyers, worry that companies may try to use them to avoid turning over electronic material.

Lawyers agree that many of the questions will have to be answered case by case. And companies will still have to invest large sums in collecting, retrieving and organizing that data.

“I think the proposed changes are a good start, but they still leave open the possibility that people will try to use the threat of costly electronic discovery to extract unfair settlements in meritless cases,” said Mia Mazza, a securities litigation partner at Morrison & Forester.

TO PRESERVE OR NOT

Electronically stored data is not new, of course, but it’s only in the past five years that it has become the bulk of discovery. And only in the past two years have courts begun to issue guidance as to what electronic information should be preserved and produced in litigation.

Because it now costs so little to store electronic information, Durie said, many companies aren’t deleting anything. She said she represented one company whose senior officials had kept every e-mail they’d ever sent or received.

“When faced with that situation it becomes impossible,” Durie said. “You can’t review every e-mail. There’s millions of them.”

Wondie Russell, a partner at Heller Ehrman, said e-discovery disputes originated in the divorce bar, when lawyers demanded e-mail messages that might disclose hidden assets.

In some commercial disputes, parties have been able to reach a “gentleman’s agreement” as to what electronic data each has to provide, Russell said. “Neither side wanted to say, ‘Give me every scrap of information,’ so they narrowed the universe.”

But a series of high-profile cases has put electronic data in the headlines and shown how crucial such material can be in litigation.

Arthur Andersen was prosecuted by the government for destroying data relating to Enron Corp. as the company was falling apart.

Morgan Stanley lost its legal battle with financier Ronald Perelman largely over the issue of e-discovery. Finding that the investment bank had failed to produce documents, a Florida state judge shifted the burden of proof in the case, saying Morgan Stanley had to show it had not defrauded Perelman. Last week a jury awarded Perelman $604 million in compensatory damages and $850 million in punitive damages.

A group of judges, lawyers and academics met in 2003 to address questions swirling around e-discovery. Last year the group, known as the Sedona Conference, issued 14 principles for managing information and records in the electronic age. The principles have already been cited by judges in some rulings, including Judge Shira Scheindlin’s decisions in the Zubulake case.

Thomas Allman, a member of the Sedona Conference and former general counsel of chemical giant BASF, said the guidelines have been enthusiastically embraced, but they aren’t binding yet.

“The problem is that there are not more than five or six appellate decisions in this area,” Allman, senior counsel at Mayer, Brown, Rowe & Maw, said. “Now there is a patchwork quilt of cases and ideas.”

FROM PROPOSAL TO LAW

That’s where the Judicial Conference, the body that sets policy on the administration of the courts, comes in: Its advisory committee on civil rules drafted five main proposed rules on e-discovery, which were then aired at public hearings.

The Judicial Conference’s standing committee will consider the final proposals in June, and they’ll go to a vote in September. If adopted, they’ll head to the U.S. Supreme Court and then Congress. If Congress doesn’t veto the rules, they could take effect in December 2006.

Two provisions are controversial and were opposed by two of the advisory committee’s 14 members — Judge Scheindlin, who has set much of the case law on e-discovery in her Zubulake rulings, and Daniel Girard, the sole plaintiff lawyer on the committee.

One provision would set up two tiers of discovery — for accessible and inaccessible data. Parties would not be required to provide electronically stored data that is “not reasonably accessible.” The data that companies claim isn’t accessible wouldn’t have to be produced, but the opposing party could contest the designation.

The two-tier system is “going to induce parties into collateral litigation over discovery,” said Girard, of Girard Gibbs & De Bartolomeo. If one party claims information is inaccessible, it “is going to prompt discovery over the merits of the claim.”

The second controversial provision — a so-called “safe harbor” — would protect a party from sanctions if it loses data in “the routine operation” of its computer system.

Some plaintiff lawyers argue that these rules will increase the cost of litigation and could give the defense an advantage.

James Finberg, a partner at Lieff Cabraser Heimann & Bernstein, says a safe harbor would give “incentives to people to create systems to routinely destroy evidence.”

Finberg said archived data is crucial in many cases. He cited a race discrimination suit he is pursuing against FedEx Corp. in which performance reviews are key evidence. He said he has found a deleted e-mail in which a FedEx industrial psychologist told the HR department that performance reviews are inconsistent and not a good predictor of job performance.

“This stuff can change the outcome of cases,” Finberg said.

Defense attorneys also have reservations about the proposals. Even if the proposed rules are passed, they say it’s still not clear what information companies will have to hold onto, and their clients may still be plagued with requests for a barrage of data.

“What are ordinary or routine operations” of a computer system, asks Heller’s Russell. If the system automatically deletes information after a certain period of time “would that be a reasonable, ordinary practice or is it sanctionable because you should have turned it off?”

Russell said she expects plaintiffs will routinely ask the courts for a blanket protective order to make sure defendants hold onto all their data once litigation commences.

While asking for a lot of data can be used as a weapon in discovery, one party can also bury the other in piles of information. Durie said in one case her opponent handed over millions of documents without reviewing them first.

“We calculated that if we reviewed every electronic document, it would take 30 people 10 years,” Durie said.

Law firms often turn to vendors to deal with electronic data. Matt Nelson, a legal consultant with e-discovery vendor Kroll Ontrack Inc., said companies like his help lawyers collect data, filter out duplicate information, arrange and format it, and then burn it onto CDs.

Mazza said the cost of managing 100 gigabytes of data in litigation — the equivalent of 7.5 million pages — can be in excess of $1 million, which excludes the time it takes attorneys to review it.

In an effort to cut costs, Mazza said, MoFo recently hired contract and temporary attorneys to do initial document reviews.

Heller has used contract attorneys and also has outsourced some limited work to a company in the Philippines. The vendor divides the data into units, inserting markers that make it easier to find a specific document.

The costs of e-discovery are a huge concern for in-house departments. Neal Rubin, Cisco Systems Inc.’s senior litigation counsel, said at a recent conference that a couple of years ago e-discovery cost Cisco $1,200 for every person that had information relevant to that lawsuit. He also said Cisco is now giving its work to firms that can best manage e-discovery, though Cisco wouldn’t name those firms.

While lawyers may shave off some expenses, e-discovery is inevitably a financial drain. And companies may decide it’s better to settle than wade through a trove of documents.

Greg McCurdy, senior attorney at Microsoft Corp., said it can cost hundreds of thousands of dollars a month to have a bunch of lawyers and paralegals poring through documents; in a big case it can reach into the millions.

“Say the amount in a dispute is $10 million, and it cost $1 to $2 million just to look at the documents,” McCurdy said. “What are the economic incentives just to give the other side $2 million and they’ll go away?”

While the river of data is not likely to ever dry up, Mazza said the future development of technology may make some contentious issues moot.

“Some day e-mail and backup tapes may become obsolete,” she said. “Some day, there may be no category of data that is ‘not reasonably accessible.’”