in-house counsel’s proactive charge: create and follow ...passage of sarbanes-oxley legislation,...

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T H E E - D I S C O V E R Y TM

Applied Discovery's Electronic Discovery Newsletter SPRING 05

Adverse Inference Instruction Recommended for Failure to Preserve Electronic EvidenceE*Trade Secs. LLC v. Deutsche Bank AG, 2005 U.S. Dist. LEXIS 3021 (D. Minn. Feb. 17, 2005).

In response to a plaintiff’s claim that a defendant securities fi rm had turned “the litigation process into a sport of dirty tricks,” a federal magistrate has recommended that sanctions in the form of an adverse jury instruction should be imposed on the defendant.

E*Trade sought sanctions against a defendant securities fi rm in E*Trade’s action against various defendants, including the Nomura defendants, alleging a fraudulent securities lending scheme that resulted in the collapse of one broker/lender and losses by others in the securities lending industry. E*Trade was an intermediate lender. Ferris, Baker Watts also was an intermediate lender that fi led a separate action concerning the alleged scheme.

The court described the obligation to preserve evidence:

The obligation to preserve evidence begins when a party knows or should have known that the evidence is relevant to future or current litigation. If destruction of relevant information occurs before any litigation has begun, in order to justify sanctions, the requesting party must show that the destruction was the result of bad faith. Bad faith need not directly be shown but can be implied by the party’s behavior. *** If, however, the destruction of evidence occurs after litigation is imminent or has begun, no bad faith need be shown by the moving party. When litigation is imminent or has already

When it comes to electronic discovery, in-house counsel have more on their plates than ever before. In addition

to dealing with electronic discovery reactively as each case arises, corporate counsel usually have the added responsibility of proactively addressing electronic discovery within their companies. One of the most important factors in preparing for potential e-discovery is establishing and adhering to an ongoing comprehensive records retention program.

With the rising tide of media attention on e-discovery, the historically mundane topic

of routine records retention has gained new life. In years past, companies tended to treat records retention programs as the equivalent of cleaning out a cluttered closet or garage—it’s something that should be done, but there’s always another project that takes priority. However, with recent events in the news such as the conviction of investment banker Frank Quattrone, the demise of former accounting giant Arthur Andersen, the passage of Sarbanes-Oxley legislation, and the Zubulake decisions, records retention issues are now on most corporate counsels’ radar screens.

In-House Counsel’s Proactive Charge: Create and Follow Electronic Records Retention Policies

CONTINUED ON PAGE 10 >CONTINUED ON PAGE 2 >

MIRANDA WRITES

Backup Tape Essentials: Controlling Time, Costs, and RisksBy Miranda GlassLexisNexis® AppliedDiscovery®

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GUEST ARTICLE

New Federal Rules Would Help IT Systems Cope with Massive E-Data without Affecting DiscoveryBy Greg McCurdy, Esq., Microsoft Corporation

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SPOTLIGHT

Client Solutions Group Provides Best Practices for Clients

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PRACTICE TIPS

Internalizing Zubulake and Other Recent Rulings: In-House Planning for Electronic DiscoveryBy Wondie Russell, Esq., Heller Ehrman LLP

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TECH TIPS

Preparing for an Effi cient and Effective Document Review

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FEATURE STORY

CASE LAW UPDATES

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The interest in records retention programs has also been fueled by the growing realization that companies are sitting on mountains of electronic documents. The ability to easily and conveniently store large amounts of data has created a hidden liability that could not have existed in the “paper age.” Many companies discover this liability when a lawsuit or government investigation arises and a request for production of electronic data is received. At that point, the elevated technological and legal costs of reviewing and producing relevant electronic documents usually get executive-level attention.

In addressing records retention issues, corporate counsel’s focus differs from that of outside counsel. Outside counsel’s primary focus is reactive, while corporate counsel’s focus needs to be both proactive and reactive. Once a lawsuit is filed, both corporate and outside counsel react with concerns about preserving relevant data, avoiding spoliation claims, and minimizing the impact of electronic discovery on business operations. But even before lawsuits arise, corporate counsel should take a proactive approach for managing electronic data to position the company wisely, ready to respond to e-discovery.

Unfortunately, records retention programs are often geared toward paper documents and fail to effectively address systematic retention and appropriate destruction of electronic documents. And electronic documents go beyond just email. A retention policy should address documents retained on individuals’ hard drives, such as word processing documents, spreadsheets, or presentations. A company must consider how to ensure the retention or destruction of these documents as needed.

Companies that have yet to address electronic documents in their retention programs are not in the minority. According to a recent industry survey, 47% of companies do not include electronic records in their document retention schedules, and 59% do not have any formal email retention policy. Even

when electronic documents are part of a company’s records management procedures, corporate legal departments are still entrusting electronic document issues to their technical staffs. In fact, 62% of legal departments are either “not at all confident” or only “slightly confident” that their organizations could demonstrate their electronic records as accurate, reliable and trustworthy. Importantly, managing electronic data should be done with an eye toward electronic discovery. This is especially important for companies regularly involved in litigation or government investigations. In these situations, the 80/20 rule usually applies. Most companies will find that 20% of their electronic records are involved in 80% of their electronic productions. Focusing a data management program on effectively and efficiently retaining, searching, and producing these electronic documents will generate significant dividends.

It is tempting at this stage to over-emphasize the complexity of technology and decide to retain a

consultant to handle the project. While a consultant can add value to the project, hiring outside expertise should not be an excuse to avoid the heavy lifting of learning about technology and the issues involved in creating an effective records retention policy.

Unfortunately, there is no one-size-fits-all records retention plan. Not only do retention issues differ from company to company but each company faces different system issues, and often a company’s

system issues can differ from office to office and department to department. Implementing a new computer system is rarely an option, so working within the existing system’s limitations to effectively manage electronic data is the norm.

In setting up a records retention policy that effectively handles electronic documents, the following broad objectives should be addressed.

Retention. Although this prospect sounds simple, it can be challenging to ensure the retention of the appropriate electronic documents, especially when they can be deleted automatically or with a push of a button. It is also necessary to ensure that documents are tagged to be retained for the appropriate length of time. Keep in mind that excessively detailed policies that make fine distinctions in determining how long documents should be retained are often not read, let alone adhered to.

Destruction. This aspect of records management often creates the most problems. People generally have difficulty destroying documents. There’s always

FEATURE STORY (continued from page 1)RESOURCES

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CONTINUED ON PAGE 9 >

IN THEIR OWN WORDS...

“The account managers are very responsive to changing needs and deadlines.”

International Equity Firm

62% of legal departments are

either “not at all confident”

or only “slightly confident”

that their organizations could

demonstrate their electronic

records as accurate, reliable

and trustworthy.


Dear Miranda,Recently one of my corporate clients found a box of 250 backup tapes that were stored offsite. These tapes hold potentially responsive information, but both my client and I have not had to deal with backup tapes in the past. What are the technical issues that my client and I should be aware of and how may these impact costs?

George B., Esq.Chicago

Dear George,That is a very good question and one that I am hearing more and more often. In the world of electronic discovery, backup tapes present a myriad of issues for many reasons. First, it helps to recognize that the original intent of backup tapes was to aid in disaster recovery, providing an answer to the issue of data loss due to hardware or software failure. In the e-discovery world, backup tapes are being looked to for a completely different purpose—as potential sources of evidence. The complexity arises in gaining access to the evidence and putting it in a usable format. Backup tapes are not like cassette tapes that will play music no matter whose tape drive you insert them into. Identical backup tape types can have completely different data layouts and formats based on a whole slew of factors, including what software was used to create the backups.

Your specific question about offsite tapes brings up one of the key issues with backup tapes—obsolete environments. If your client’s tapes have been stored offsite for a considerable period of time, it is possible that whatever system backed up the tapes is no longer in use by your client. This means that a third-party service provider may have to attempt to restore the data, a process that can be both expensive and time consuming if undertaken without proper planning. In most situations, a service provider basically needs to recreate the environment in which the backups were performed. To do this most optimally, the vendor will need to know many technical details about the environment that was used to create the tapes, e.g., the tape type, the operating system of the backup server including patch level, the specific backup software information including version number, etc. Typically, the more information you are able to provide, the more likely the process can be a smooth one.

Another factor that your client and you should be aware of is backup sets. A backup set consists of the number of tapes that comprise an archive. In your population of 250 backup tapes, most likely several backup sets exist. If the tapes are not clearly labeled (e.g., “01/01/2005 Tape 1 of 17”), it will be very difficult to properly group tapes into sets and sequence them. This categorization is necessary to restore data that will be both coherent and cohesive. Further, if there are missing tapes from a set, it could be impossible to properly restore data.

Basically, any issues that cause the service provider to perform repairs, develop custom solutions, or troubleshoot problems will impact the length and cost of the service.

Other considerations to be aware of:Corrupted data. Corruption of data on tapes is a common occurrence. Tape restoration vendors are often able to restore corrupted tapes or information, but it takes time and money to do so.

Damaged tapes. Tapes are fragile and degrade over time. They can also be damaged if poorly stored or improperly shipped. Damage may render the tapes unrestorable.

Missing mapping data. Some backup tapes systems are very complicated and disburse data across tapes in an interleaved manner rather than more linearly filling one tape and moving to the next when it is full. If mapping data is not provided prior to restoration, the vendor will need to try to piece together the data.

GroupWise®. Because of the complexities of GroupWise, mailboxes are usually converted to PST prior to review of GroupWise email data. Many people use a Microsoft migration path, which may adversely affect the pool of data by changing critical information or by missing certain data sets, such as emails that have been deleted but still exist as trash. GroupWise conversion adds time and expense to the data restoration process.

Brick-level restorations. Brick-level backups include complete, individual mailboxes rather than just the information store and take longer to both back up and restore. Other types of more efficient backups may include pointers to duplicate emails rather than back up each redundant email message. There are complexities involved in brick-level restorations that can increase both processing times and costs.

Media types. Though the term “backup tape” is commonly used and tapes are currently the most frequently encountered backup media, tapes comprise only one of the many types of media that can be used for storage and transport of archived information; data can also be backed up to floppy disks, hard disk drives, Jaz drives, SCSI drives, Zip drives, etc. Recently I heard about some backed up data that had to be restored from reel-to-reel tapes. Obviously, it takes a specialized vendor to deal with outdated media types like this. They are out there, though.

Clear communication. I’ve been told by reliable sources that many delays are caused by lack of communication. You need to be prepared to tell the service provider exactly what is required: Do you want copies of the tapes made prior to restoration for data preservation reasons? Do you need a catalog run that will indicate what data types are on the tape? Should the output be PST or MSG files? Does the client want de-duplication done; if so, across or within custodians? Having all the details straight will make things run smoothly and efficiently, as well as impress your client. Of course, there are a completely different set of communication challenges when dealing with the opposition’s backup tapes.

Backup Tape Essentials: Controlling Time, Costs, and Risks

Miranda Glass is Educational Programs Manager at Applied Discovery.She answers questions from readers in each issue of The E-DiscoveryStnadard. You can submit a question to her [email protected].

MIRANDA WRITES


New Federal Rules Would Help IT Systems Cope with Massive E-Data without Affecting Discovery

The Advisory Committee on Civil Rules recently held hearings on their proposals to update the Federal Rules of Civil Procedure to address the challenges of electronic discovery. Microsoft® submitted detailed comments, and I testified at the hearing on January 11. (The proposals, comments and transcripts are posted at www.uscourts.gov/rules.) I have been managing litigation and counseling on document retention issues for Microsoft for five years. Based on that experience I know that the operational needs of IT systems explain why businesses support the proposed e-discovery rules amendments. Opponents fear the amendments could permit businesses to improperly delete documents or help them design their IT systems to impede discovery. These fears arise from the distrust and antagonism fostered by our adversarial legal system. Such fears are based on misunderstandings of the law and of how large IT systems work. Businesses will continue to comply with their discovery obligations. Those who do not comply are subject to severe sanctions under the civil rules, under the court’s inherent powers, and ultimately under the criminal laws. Let me explain why the fears are unfounded and how the two principal amendments will work in practice.

I. The Threat of Sanctions is an Effective DeterrentIT systems are designed to help companies run their businesses while coping with vast amounts of data, much of which is junk. Absent specific legal retention duties, companies are free to dispose of unneeded documents. It is the job of corporate counsel to ensure businesses comply with their legal obligations. We take that obligation very seriously. Document retention may once have been a sleepy backwater of the law, but in the post-Enron/Arthur Andersen world the stakes are extremely high. A criminal indictment for destruction of documents can completely destroy a major company like Arthur Andersen overnight. Even more ominous for corporate officers, Sarbanes-Oxley authorizes prison sentences of up to 20 years for intentional destruction of evidence. 18 U.S.C. §1512 (2002).

Less severe, though far more common, civil sanctions motions have become frequent litigation tactics with serious consequences that deter any rational business from deleting documents related to any pending or anticipated litigation. Judge Shira A. Scheindlin (author of the famous Zubulake decisions in the SDNY and a member of the Rules Advisory Committee) recently published a very interesting article surveying numerous reported decisions and arguing that the sanctions imposed for spoliation are fewer and less severe than supporters of the rules amendments think. 11 Mich. Telecomm. Tech. L. Rev. 71 (2004).

There is truth to Judge Scheindlin’s point, but it is also true that many more decisions go unreported and many sanctions motions are withdrawn once the motion has forced a settlement of the discovery dispute or of the entire case. In any event, the threat posed by the “iceberg” of sanctions motions has a much larger deterrent effect than the “tip” of reported sanctions decisions might indicate. No competent lawyer would advise clients to avoid discovery obligations or turn a blind eye to non-compliance.

II. How the Two Main Amendments Would WorkAdvances in computers have greatly increased our ability to create, copy, send, and store documents. The Federal Rules were designed for a world where documents could be created only with pens, pencils, typewriters and carbon paper. The copier later exponentially drove up the number of documents and the costs of discovery. More recently, word processing, email, and other software further increased the costs and problems of discovery by orders of magnitude. The greatly increased volume of documents now created has caused two problems addressed by the two principal proposed rules amendments.

The “Two-Tier” proposal deals with the difficulties of accessing older documents that accumulate in IT systems, often for no particular purpose. It distinguishes between e-documents that are readily accessible—such as email accessed daily—and those that are not “reasonably accessible”—such as data on old backup tapes, outdated “legacy” systems, or old encrypted data. Data that is not “reasonably accessible” would be presumptively exempt from discovery absent a showing of special need. This proposal does not permit the destruction of anything.

The “Safe Harbor” proposal addresses the daily need for automatic deletion/recycling of the massive volumes of junk and duplicate documents. It would provide limited protection from sanctions if a party has taken reasonable steps to preserve discoverable data but some data was deleted by the “routine operation” of IT systems. This is intended to protect the good faith routine operation of systems such as disaster recovery backup tape recycling or the deletion of junk email by spam filters.

To explain the need for these two provisions we need to look at some specific IT problems. Spam and backup tapes demonstrate why the Safe Harbor is needed.

By Greg McCurdy, Esq., Microsoft Corporation


GUEST ARTICLE


Preparing for an Efficient and Effective Document Review

A multitude of applications and features have been developed for attorneys to better manage online reviews, yet little has been done to help better manage the planning phase of a review.

Too often, planning is an afterthought in the rush to get documents in front of the attorneys. One of the main questions that needs to be answered before the review gets into full swing, however, is whether enough resources are being applied to the review. With too few, you risk jeopardizing production deadlines. With too many, you’re apt to risk

losing a client over the size of the review team and the cost of the overall review.

When it comes to such tools, technology can be a double-edged sword. On one hand, a good tool that allows for sufficient planning can dramatically reduce the risk of missing critical deadlines. However, too much complexity will dramatically reduce the likelihood that tools will be used at all except by the most advanced users. Furthermore, complex tools usually rely on a wide variety of inputs, many of which are assumptions,

especially when the case begins. Assumptions on top of assumptions tend to produce less than accurate outcomes over time.

One of the easiest planning tools available is Microsoft® Excel. While this application can be used to create incredibly complex spreadsheets, it also accommodates the creation of a simple template to use at the start of a case to determine what resources are necessary to reach the production stage of the project.

STEPS ONE, TWO, AND THREE

Step 1Understanding Assumptions

Given the average “rush to review” that takes place on almost every case, the likelihood the case administrator will be able to put much time into planning is small. Creating a simple template that can be used over and over and requires only a few simple inputs to identify some meaningful information can go a long way.

As with any basic model, there are some assumptions. Here are a few of the most common:

1. On average, one GB of data contains approximately 75,000 pages of data. This figure will vary, sometimes dramatically, but it will do as a start. Later on, once you get better numbers from your e-discovery service provider, you can change the model to represent actual numbers.

2. The average percentage of GBs removed during the initial staging or culling process. This number will vary based on search terms, date culls, etc. In the LexisNexis Applied Discovery experience, an average case that stages its data removes approximately 70% of data prior to actual review. Once again, you can change these numbers as the actual percentage removed comes to light.

3. The average number of “unique” documents vs. duplicates. This number can vary quite dramatically as well. For example, a case with multiple backup tapes may have a very high percentage of documents that are duplicates due the nature of most corporate backup strategies. For the purposes of estimating, try starting with a 20% of rate of duplication and modify it as your service provider provides actual numbers.

4. Finally, the average number of documents to review per day per attorney. Issues to keep in mind include the tendency for attorneys to review emails faster than more complex documents, such as large Microsoft Excel spreadsheets. Additionally, given the fact that most of the better review applications provide easy ways to “bulk categorize” duplicates, the number of truly unique documents in the database will also affect review time. Once again, a rule of thumb is that the average reviewer will tag or review approximately 500 documents a day.

Of course, the e-discovery service provider with whom you’re working should have general assumptions to share with you when you start planning.

Step 2Build a Planning Template

Below is a model that would help determine whether or not the review parameters are correct for the production deadline.


TECH TIPS


Client Solutions Group Provides Best Practices for Clients

Carrie Davey &Kurt Walker

Regional Managers of the LexisNexis Applied DiscoveryClient Solutions Group

This issue’s Spotlight column features an interview with Carrie Davey and Kurt Walker, Regional Managers of the LexisNexis® Applied Discovery® Client Solutions Group.

The E-Discovery Standard (EDS): What is the Client Solutions Group?

Carrie Davey & Kurt Walker (CD/KW): The Client Solutions Group is made up of account managers with a variety of professional backgrounds, including former practicing attorneys, paralegals, litigation support professionals, and experienced IT managers. Account managers provide clients with training, service, and support for the duration of a project.

EDS: What is your role within the group?

CD: I manage the account managers responsible for our clients in the Eastern United States and Kurt manages the account managers responsible for our clients in the Western portion of the country. Both of us also provide mentoring to our account managers, including educating them on enhancements to our services, best practices for review, and on how to effectively communicate with their clients. Wemake sure our account managers are well-trained to proactively anticipate client needs and stay ahead of the curve of this rapidly changing industry.

EDS: What is the typical interaction between your group and a client?

KW: After the introduction to the client, we hold a project specifi cation meeting, which establishes the technical processes, timelines and communication protocol of a project. This meeting can also serve as an e-discovery best practices consultation. For example, we can provide recommendations regarding the best way to conduct a document review based upon project timelines and available resources.

EDS: What are a few best practices of e-discovery management that you share with clients?

SPOTLIGHT


GUEST ARTICLE (continued from page 4)

CD: Some of the best advice we give to our clients are the following items:

• Engage a service provider in the early part of the process. We can provide critical advice early in the project to save clients from potential time and cost setbacks later.

• Set realistic timelines for pre-review tasks, such as data-gathering, backup tape restoration, and review protocol.

• Communicate deadlines early and often to both the service provider and the review team.

• Coordinate timeline and method of production early in the project. This will ensure that all production questions are answered and anticipated well before the day of production.

• Routinely monitor the review progress to insure that timelines are met.

• Optimize review tools for consistency and accuracy during the review and production processes.

EDS: What services do you provide to clients?

KW: We provide best practices and technical training to clients, both in person and online. In addition, all members of the Client Solutions Group are encouraged to initiate proactive steps to anticipate client needs and address client concerns so they can concentrate on the document review process.

EDS: What do you believe is the Client Solutions Group’s greatest strength?

CD: We understand that each project is unique. Our account managers are able to adapt and respond to the needs of each case effectively and efficiently by being familiar with the services we provide and the challenges our clients face. We want our clients to know that when they call us with a project or a problem they will talk with someone who knows them and is familiar with their firm, their case and their electronic discovery needs.

EDS: What is the Client Solutions Group’s goal?

KW: We have a very high repeat client rate, which we attribute to our strong service standards. Our ultimate goal is to maintain an outstanding level of service by providing our clients with the resources, tools and advice to help make their project a success.

SPOTLIGHT (continued from page 6)

A. Spam Filters: Email is the most common form of e-document today and its popularity is growing rapidly. From 2003 to 2004 the amount of external email Microsoft received doubled, largely due to commercial junk email called “spam.” Our IT network now receives 250 - 300 million messages each month from outside the company. The automatic filters in the “gateway/firewall” that protect our network are indispensable because they delete 85 - 90% of all incoming Internet email as spam. It is conceivable, though very unlikely, that an automatic spam filter would delete discoverable data. The Safe Harbor would be helpful because of its provision that litigants who take reasonable steps to preserve discoverable information would not be sanctioned under the Federal Rules for using automatic deletion technologies like spam filters.

B. Recent Backup Tapes: Microsoft’s IT network includes about 90,000 email boxes for individual employees, vendors, and others. Millions of emails are stored on user PCs and on email servers. Those servers are backed up for disaster recovery purposes by about 15 tape drives in our main data center. Each day that data center generates between 150 and 200 backup tapes which are recycled every two weeks. Fourteen days’ worth of tapes cost about $65,000. If we had to stop recycling backup tapes, the additional tapes alone would cost about $1.7 million per year. After taking reasonable steps to preserve discoverable documents on PCs and servers, the Safe Harbor would permit the operation of necessary routine recycling systems without undue fear of sanctions motions since recent backups are by definition extra copies of the data already on PCs and servers.

The Two-Tier Rule is needed to resolve issues including the following examples. The Two-Tier Rule addresses old, hard-to-access documents that often linger in corporate systems long after their useful life. Although the Two-Tier Approach calls for data to be categorized as accessible or inaccessible, there really is a sliding scale. Documents become increasingly inaccessible with the passage of time depending on how they were created and stored. Inaccessible documents include: (1) “legacy” systems such as old databases or other systems that contain

old data that may no longer be used and are hard to access because the necessary equipment or staff may not be available;

(2) old encrypted documents that become inaccessible if the decryption keys are lost or expired; and

(3) deleted or fragmented data that can be retrieved only with expensive forensic techniques.

The paper world has analogous concepts. Ink fades and paper decays. Remember thermal fax paper? Today we toss paper into the trash, the recycling, or the shredder. Eventually it ends up in a landfill. At various points in this process it is theoretically possible, though difficult and expensive, to retrieve this paper. Consequently, discarded paper is not generally considered discoverable because it is relatively inaccessible. The Two-Tier Approach applies this principle to data in deleted or encrypted documents that become increasingly difficult to access over time. In the world of paper discovery, such efforts would be considered extraordinary and would not be required absent a good reason. The proposed Two-Tier Rule adapts that concept to the realities of today’s IT systems. Nonetheless, even relatively inaccessible documents would still be produced with an appropriate showing of need.

ConclusionIn order to really understand how these two proposals will affect the way companies manage IT systems and respond to discovery, we need to understand the underlying technology, the operational facts, and the many tough sanctions for non-compliance.

These factors all demonstrate that the proposals will help IT systems manage the vast flows of new data and the vast amount of inaccessible old data without impairing legitimate discovery.

© 2005 Microsoft Corporation. All rights reserved.

Greg McCurdy is a Senior Attorney at Microsoft Corporation based in Seattle. He manages U.S. and international antitrust and commercial litigation and advises on document retention and civil justice reform issues. Mr. McCurdy graduated from Harvard College and NYU Law School. He clerked for the Hon. Harold Baer, Jr. (SDNY) the Hon. Harry T. Edwards (DC Cir.). Before joining Microsoft in 2000 Mr. McCurdy was in private practice in New York.


“I was very satisfied that this program covered a wide area of e-discovery and the speakers

were excellent and informative.”

E-Discovery Best Practices Course Attendee | Chicago


PRACTICE TIPS

Internalizing Zubulake and Other Recent Rulings: In-House Planning for Electronic Discovery

Over the past two years, four discovery rulings in a garden-variety employment discrimination case have revolutionized

perspectives on electronic discovery. Zubulake v. U.B.S. Warburg has changed the paradigm from viewing “e-discovery” as a special subset to recognition that “discovery” is e-discovery. Each of the Zubulake rulings dealt with some aspect of a party’s obligation to preserve and produce electronic records. Judge Shira Scheindlin demystified many issues relevant to electronic evidence using a common sense approach that has now been adopted in a number of cases by other judges. If you have not read the decisions, consider doing so, especially Zubulake V, which offers guideposts for both companies and counsel.

The Zubulake rulings do not stand alone in recognizing the importance and fragility of ubiquitous electronic data; many courts have issued significant rulings on the consequences of a party’s failure to preserve information. See for example, U.S.A. v. Philip Morris, USA, Inc., 2004 U.S. Dist. LEXIS 13580 (D. D.C. July 21, 2004); Mosaid Technologies v. Samsung, 283 F. Supp. 2d 1359 (September 15, 2003) and numerous other cases described in The E-Discovery Standard. What is unique about Zubulake is the comprehensiveness of the guidance offered by the Court concerning the critical steps necessary to preserve electronic evidence and avoid sanctions.

In this environment, it is imperative that attorneys—both in-house and outside—promptly recognize and communicate to clients the need to impose a litigation hold on all materials potentially relevant to an actual, reasonably foreseeable, threatened or pending investigation, prosecution, or lawsuit, whether

in the most likely context of a particular dispute or in connection with pattern litigation, as is common in product liability and some other contexts. Thus, a letter advising that an investigation is being initiated, demand letter, telephone call or email complaint, draft civil complaint, subpoena, environmental PRP letter or information request, or newspaper article can trigger this obligation. This means that quite often, business attorneys and not litigators will be the first to learn of a situation requiring suspension of ordinary document destruction cycles. Business lawyers must be poised to spot this issue and to address it or refer the client to litigation counsel immediately.

Swift action is especially essential to prevent the destruction of electronic information, including emails, and the contents of certain storage devices that may be recycled without intervention. The memorandum imposing the litigation hold must clearly describe what must be preserved in terms that a lay witness can understand, and should address electronic materials expressly to avoid any confusion on the part of the employees using the systems. Instructions must reach all likely custodians as well as those responsible for IT functions. Otherwise applicable retention periods pursuant to a routine policy must be suspended and the company should also be advised that changes in retention policies and practices generally should be deferred until the litigation ends.

In-house counsel will have a primary role in crafting a successful response to these discovery obligations. They have the opportunity to plan for how records preservation can be

implemented if and when the occasion arises. To be most effective, a company needs to establish coherent electronic records retention policies and procedures and implement them across their systems. While this is not an easy task, it offers a superior return on investment. In-house counsel should begin now to develop an understanding of how the company’s IT systems are structured and operated, including issues such as backup procedures, rotation cycles, retention of legacy systems and data. When a suit or subpoena is served, it is already late for in-house or outside counsel to begin asking questions. A head-in-the-sand approach builds in substantial risk that relevant data will be lost before an effective hold can be instituted.

Many companies have instituted technology solutions for the automatic elimination of email after some specified time interval, usually after thirty to ninety days. Even if the company has a policy requiring that all emails must be printed and then filed in accordance with analogous procedures for hard copy documents, once preservation is necessary, such auto-delete programs must be turned off at least for the entire potentially relevant population. If not, the company is more likely to be required to restore backup tapes and/or risk sanctions. Moreover, the print versions of email omit what can be important information contained in the electronic version (“meta data” such as the time sent, delivered, and read; forwarding data; bccs; notes). Meta data can be a treasure trove in some litigation. For example, in Zubulake, the plaintiff hoped to establish that her supervisor (contrary to his deposition testimony before a

By Wondie Russell, Esq., Heller Ehrman LLP



key email was restored from backup) was aware that she had filed an EEOC charge before he terminated her. This evidence is critical to her retaliation claim and survived only in meta data.

Rather than risk errors in defining the scope of relevance, it may be prudent to suspend auto-delete entirely for the duration of the litigation or until a court order is obtained. Similarly, the rotation or recycling of backup tapes should also be addressed as appropriate under the particular circumstances. Until refinements can be crafted, all backup tapes that may contain relevant materials initially should be subject to the hold. Backup tapes are intended for disaster recovery of the network and are not an optimum method for archiving data long term. Tape restoration is inefficient and can be costly. However, until a coherent preservation plan is prepared, the suspension of tape recycling is usually the most prudent alternative. In-house counsel should prepare a plan that will allow immediate implementation of these steps and that identifies each of the key personnel involved along with 24/7 contact information.

All potentially affected custodians, management and IT staff must receive the hold instructions and, ideally, have the chance to ask questions to ensure their understanding. It may be necessary to amend the hold as the nature of the case and scope of relevance evolve, or as orders are issued by the court. Once the hold is instituted, monitoring procedures should be implemented, and periodic reminders should be communicated. In the course of identifying and collecting relevant

records from custodians, each custodian should be asked to confirm her/his familiarity and compliance with the hold.

IT has a language of its own and few attorneys are fluent. In many contexts, an outside consultant should be engaged to assist in analyzing systems, creating mirror images of electronic records, and devising plans that support the client’s ongoing business operations while preventing alteration of files that require preservation. Burden arguments are increasingly disfavored as the costs of electronic discovery have come down and as courts and federal agencies have adopted electronic systems themselves. The better approach to avoiding expense and the loss of evidence is to develop reasonable proactive electronic solutions and earn credibility with the Court. As increasing numbers of courts adopt standing orders dealing with electronic data and mandatory disclosures, no party can afford to ignore them or to provide inaccurate information.

The foregoing steps are essential to formulate an effective discovery strategy and to ensure that data will not be destroyed inadvertently. The cases in this area teach that even sophisticated companies often make seriously damaging mistakes in the discovery process, overlooking relevant materials and failing to prevent the destruction or alteration of evidence. Users and potential witnesses may, for example, be tempted to review their documents or emails not appreciating that merely opening or printing materials may alter dates irrevocably, and also will create an electronic record of the preview—which can make for some interesting deposition

examination. The consequences of such errors have included monetary sanctions, preclusion from calling certain key witnesses, payment of opponent’s costs, payment of restoration expenses, preclusion from presenting certain defenses, inference instructions to jury, and dismissal. Beyond these direct effects in the courtroom, spoliation can have an enormous public relations impact. Consider for a moment Arthur Andersen, a company that had no major clients left by the time the government’s prosecution for obstruction of justice commenced.

PRACTICE TIPS (continued from page 8)

the thought that a particular document will be critical for addressing a future issue. Automating the destruction process and limiting the amount of storage available to employees are usually components of any effective retention program.

Suspension. Procedures should be incorporated to suspend the destruction of documents

in the event of litigation or a government investigation. Such procedures should involve more than simply issuing an email notice to appropriate employees. Once a suit is filed, consider forming an e-discovery team consisting of personnel from key departments such as IT and Legal, as well as outside counsel, to address suspension procedures and other

e-discovery issues. After implementing suspension procedures, audit those procedures to ensure their effectiveness.

Production. A retention policy designed to allow easy access to often-

produced documents will pay substantial dividends in the future.

Enforcement. A selectively enforced retention policy can be worse than not having a policy. Too often a neglected retention policy is suddenly enforced when bad news appears on the horizon, frequently with disastrous consequences. An “owner” of the retention policy should be designated with the responsibility for ensuring its consistent enforcement.

Executive Buy-In. If an organization’s top executives fail to support an effective retention policy, the rest of the organization will likely follow suit. Companies that create and implement a retention policy designed to manage the continued growth of electronically generated and stored data will be in the best position to handle the e-discovery demands of the future.

FEATURE STORY (continued from page 2)

Wondie Russell is a shareholder in the San Francisco office of Heller Ehrman LLP, practicing in the areas of insurance recovery on behalf of policyholders, product-related liabilities, and complex business torts. She also advises clients in connection with records integrity risk issues, including both document retention obligations and discovery in the electronic environment. Ms. Russell is a frequent lecturer, author and panelist on these subjects, and on attorney’s professional responsibilities.


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commenced, “a corporation cannot blindly destroy documents and expect to be shielded by a seemingly innocuous document retention policy.” 2005 U.S. Dist. LEXIS 3021 at *14 (Citations omitted.)

Nomura claimed that E*Trade had not shown any bad faith of Nomura when Nomura “permanently erased all the company’s hard drives in mid-2002” and that E*Trade had not been prejudiced because Nomura had removed and preserved relevant information from a particular employee’s hard drives. However, according to the court, Nomura was aware of the potential for litigation at the time the hard drives were cleaned, and E*Trade was not required to show bad faith or willful intent of Nomura.

The court held that relevant email was deleted due to a failure to place a litigation hold on mailboxes or to preserve backup tapes for the relevant time period. A Nomura witness testified no litigation hold was placed on email because all email was preserved on backup tapes. However, Nomura then did not alter its three-year retention policy on backup tapes, and “unique information relevant to the time period of the stock transactions [at issue] was irretrievably destroyed.”

Prejudice to E*Trade from the spoliation that had to be shown before sanctions could be imposed was evident, according to the court, from the “substantial and complete nature of the destruction of the evidence contained in the recorded telephone conversations and hard drives destroyed by Nomura…” The court held that the sanction of a default judgment could not be imposed because the discovery misconduct did not occur after issuance of an order to compel. However, recognizing “the severity and significance of an adverse inference instruction,” the court recommended that the district court should instruct the jury that information that Nomura failed to preserve would have been advantageous to E*Trade and disadvantageous to Nomura.

Pattern of Discovery Abuses Results in Default JudgmentColeman (Parent) Holdings, Inc. v. Morgan Stanley & Co., Inc., No. CA 03-5045, 15th Jud. Cir., Palm Beach Cty., Fla., Mar. 23, 2005.

After finding that Morgan Stanley deliberately violated discovery orders, a Florida court imposed sanctions that include a jury instruction to deem allegations in the $485 million complaint “established for all purposes.”

Morgan Stanley was the financial adviser for Sunbeam Corporation in Sunbeam’s purchase of an 82% interest in the Coleman Company in

exchange for cash and stock. Following Sunbeam’s bankruptcy, Coleman filed its action against Morgan Stanley.

The complaint alleged a plan to understate Sunbeam’s financial problems, inflate earnings, and sell Sunbeam “before it became apparent that the improved fiscal results were fictional.” However, a buyer could not be found, and Morgan Stanley “recommended that Sunbeam acquire other companies, using Sunbeam’s stock, which was fraudulently inflated, as the ‘currency’ that would be used to pay for the acquisitions.”

Coleman and Morgan Stanley could not agree on a mutual email production protocol. Morgan Stanley’s counsel asserted that email searches could be conducted only at enormous cost and would be fruitless because there were no backup tapes containing requested email from the relevant time period.

The court entered an order requiring Morgan Stanley to search the oldest full backup tape for each of 36 Morgan Stanley employees involved in the Sunbeam transaction and to review emails containing any of 29 specified search terms. Morgan Stanley produced an additional 1,300 pages of email and eventually certified its compliance with the Agreed Order.

The Court stated that Morgan Stanley “personnel, including in-house counsel, knew the certification of compliance was false when made.” The Court also noted that limitations imposed by the Agreed Order had not been needed because Morgan Stanley had an archive that captured and stored email. The Court stated that it now knew that “archive searches are quick and inexpensive. They do not cost ‘hundreds of thousands of dollars’ or ‘take several months.’”

The court described 23 instances that had come to light indicating Morgan Stanley’s “wrongful conduct has continued unabated.” Also, at a hearing on Coleman’s adverse inference motion, Morgan Stanley “chose to hide information about its violations and coach witnesses to avoid any mention of additional undisclosed problems with its compliance with the Agreed Order.” Morgan Stanley “employees, and not just counsel, have participated in the discovery abuses,” according to the court.

The court emphasized that “[t]he judicial system cannot function this way.” Thus, the jury will be instructed that the facts in a redacted complaint “are deemed established for all purposes in this action.” The Court will read a statement to the jury concerning Morgan Stanley’s discovery practices to use in determining punitive damages.

CASE LAW UPDATES (continued from page 1)

Step 3 Revisit the Model with Actuals

There are two simple steps to take during the actual review. The first is to update the estimated number of documents to review with actual numbers. Your service provider should be able to provide general numbers shortly after all the data has been brought in-house. However, given the complexities associated with expandables, such as PST files or NSF (Lotus Notes) files, the absolute final numbers may take some time to obtain.

Second, you should definitely check reviewer activity reports to see if the average number of documents reviewed matches your expectations. These numbers can change dramatically as different document types are encountered, so you’ll need to update this one statistic (“average number of unique docs/day/attorney”) pretty frequently as well.

As far as planning goes, there are certainly far more complex options than Microsoft Excel available. These tools generally provide too much complexity for the task at hand. Using a good, simple model from the beginning of the case and updating it periodically is a crucial component, which will help to ensure the review reaches a successful completion.

TECH TIPS (continued from page 5)


E-Discovery Best Practices Certifi cation CourseApplied Discovery is offering an intensive one-day course that will provide best practices training for how to effectively prepare

for and manage electronic document review. The course is designed for those actively involved in electronic discovery issues

in their practice. The course will also include sessions on the latest case law and rules updates, as well as hands-on training on

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The course fee is $250. Attendees will earn 7 credit hours and will receive extensive course materials, including checklists,

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Upcoming CoursesMay 12 Washington, D.C.

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UPCOMING EVENTS

Applied Discovery will participate in several events in the upcoming months. To register for one of the events or to find more information about other electronic discovery events, visit the News & Events section of our website at www.lexisnexis.com/applieddiscovery.

You may have read about Applied Discovery recently in the following publications. Please contact us to request a copy of any of these articles, or view them at www.lexisnexis.com/applieddiscovery.

“Don’t Try This At Home: Doing E-Discovery Is Best Left to Outside Experts” by Jason Krause ABA Journal March 2005

“The Zubulake Road Show: Lawyers Are Traveling to Conferences, Companies to Explain E-Discovery Opinions” by Wendy Davis ABA Journal February 2005

In this issue:Guest Article: “ New Federal Rules Would Help IT Systems Cope with Massive E-Data without Affecting Discovery,”

by Greg McCurdy, Esq., Microsoft Corporation. See page 4.

Practice Tips: “ Internalizing Zubulake and Other Recent Rulings: In-House Planning for Electronic Discovery,” by Wondie Russell, Esq., Heller Ehrman LLP. See page 8.

APPLIED DISCOVERY IN THE NEWS

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13427 NE 16th Street, Ste. 200 Bellevue, WA 98005

www.lexisnexis.com/applieddiscovery

Applied Discovery: E-Discovery Best Practices Certification Course The Westin GrandWashington, D.C.May 12, 2005

DRI: Electronic Discovery Seminar Renaissance HotelWashington, D.C.May 19 - 20, 2005

All information provided in this document is general in nature and is provided for educational purposes only. It should not be construed as legal or professional advice. Applied Discovery encourages you to conduct thorough research on the subject of electronic discovery.

LexisNexis, Lexis and the Knowledge Burst logo are registered trademarks of Reed Elsevier Properties Inc., used under license. Applied Discovery is a registered trademark and The E-Discovery Standard is a trademark of Applied Discovery, Inc. Other products and services may be trademarks or registered trademarks of their respective companies. © 2005 Applied Discovery, Inc. All rights reserved. AD00075-0 0405

Corporate Legal Times SuperConference Sheraton Chicago Hotel & TowersChicago, ILJune 22 - 23, 2005