Electronic Discovery

Electronic Discovery: Impact of Recent Amendments and Traps for the Unwary
– by Joshua Friedman (josh@joshuafriedmanesq.com)

The December, 2006 amendments to the Federal Rules of Civil Procedure concerning e–discovery and the new Federal Rule of Evidence 502, which became effective September 19, 2008, have made it easier to obtain discovery of electronically stored information (ESI), particularly in a format of your choosing, however they also include a few traps for the unwary. FRE 502 provides an elegant solution to a common problem encountered in e–discovery, inadvertent disclosure of privileged communications and work product.

Rule 34(a)

Rule 34(a)(1)(A) now permits the party requesting discovery to "inspect, copy, test, or sample any designated documents or electronically stored information . . . translated, if necessary, by the respondent into reasonably usable form." We are now asking for "documents and electronically stored information," in discovery and not relying on the definition of "document" contained in local rules, which often incorporate the FRCP by reference. The Advisory Committee Notes make it clear that the new language, "or electronically stored information," is intended to broaden the scope of what is discoverable beyond things which were generally accepted as within the definition of a document.

Under the old rule, a party would probably not have been in violation for failing to produce a "tweet" created using twitter, however tweets are now considered ESI and must therefore be produced. A defendant that serves a request for all ESI concerning a subject is going to be entitled not only to your client's tweets, but responsive postings on MySpace, Facebook and any of the myriad social networking sites1. We include a warning in our retainer not to create responsive material using social networking sites and instruct clients to preserve any they may already have created.

Rule 34(a)(1)(A) also provides express authorization to demand the electronic data "translated" into the format you find most usable. Our document requests demand that all documents be produced in "native format, unless otherwise indicated." This means that we are entitled to receive the actual email files and the actual Excel files, all of which contain "metadata." Emails can be produced in a number of file formats, so in our document demands we require that however emails are produced, the header information––which contains the metadata––be preserved.

We indicate that we do not want native format production when we know that defendant's program uses a proprietary file format we cannot open, such as PeopleSoft2. In that case, we ask the defendant to produce the PeopleSoft data in a format we can use, such as an Excel file, with Excel columns labeled to correspond with the PeopleSoft file's data fields.

Rule 34(a)(2) now provides authority that a party may be permitted access to an adversary's computers to "measure, survey, photograph, test, or sample." However, the Advisory Committee Notes state that:

The addition of testing and sampling to Rule 34(a) with regard to documents and electronically stored information is not meant to create a routine right of direct access to a party's electronic information system, although such access might be justified in some circumstances.

Before you obtain direct access you are going to have to show the court the defendant is engaged in some sort of abuse, such as hiding responsive ESI.

Rule 45 has been modified as well to make clear that ESI may be subpoenaed from non–parties, and that the "subpoena may specify the form or forms in which electronically stored information is to be produced." Rule 45(a)(1)(C).

Rule 37(e)

37(e) 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." This is the so–called "safe harbor" provision that was much–discussed when the revised Rule 37 was being developed.

Some systems overwrite their backups within months or even a month; after that, a restore is impossible. One of the reasons defense lawyers were initially so keen on this safe harbor is that the Advisory Committee wrote that:

[I]t is unrealistic to expect parties to stop such routine operation of their computer systems as soon as they anticipate litigation. It is also undesirable; the result would be even greater accumulation of duplicative and irrelevant data that must be reviewed, making discovery more expensive and time consuming.

May 27, 2006 Report of the Advisory Committee on the Federal Rules of Civil Procedure, at 71. n11 However the Advisory Committee notes state that "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."

What this rule means is that your litigation hold (also called document hold) letter should give the potential defendant all the specific information you can obtain from your client as to the probable location of relevant electronic data, so that the defendant cannot later argue that to comply would have required it bring to a halt the operation of a large business due to restoration obligations.

The document hold letter should also make clear that litigation is coming; the magic words are still "our client is going to sue you." In Byrnie v. Town of Cromwell, Bd. of Educ. 243 F.3d 93, *107 –111 (2d Cir. 2001) the court defined spoliation as "the destruction or significant alteration of evidence, or the failure to preserve property for another's use as evidence in pending or reasonably foreseeable litigation." Id., at 108 quoting West v. Goodyear Tire & Rubber Co., 167 F.3d 776, 779 (2d Cir. 1999); Cache La Poudre Feeds, LLC v. Land O'Lakes Farmland Feed, LLC, 2007 U.S. Dist. LEXIS 15277, 29–30 (D. Colo. 2007)(no document hold required in light of new rule and fact that "letter did not threaten litigation . . . . Rather, Cache La Poudre hinted at the possibility of a non–litigious resolution.")

The new rule has not displaced the pre–rule case law on spoliation and Zubulake v. UBS Warburg LLC, 229 F.R.D. 422 (S.D.N.Y. 2004)(defendant's failure to preserve electronic evidence after notice from plaintiff's counsel constituted spoliation and warranted an adverse inference instruction) remains influential.

After backups are overwritten, recovery becomes impossible, or at least hit–or–miss and very expensive due to, among other reasons, possible involvement of forensic computer experts. This is why we are now sending out document preservation letters after the first meeting with the potential client, hopefully within the overwriting window. As discussed below, as long as a backup is available, it may be possible to obtain discovery of emails at less expense than paper discovery.

This is the document hold language we are presently using:

We represent . They intend to bring a lawsuit against [ ] (""). [describe claim and facts]. [Describe documents to preserve]

Federal and local law require the preservation of all relevant evidence, including documents, information and physical evidence. See, e.g., See 42 U.S.C. 2000e–8(c); 29 CFR 1602.14 ("In the case of involuntary termination of an employee, the personnel records of the individual terminated shall be kept for a period of one year from the date of termination. . . . Where a charge of discrimination has been filed, or an action brought by the Commission or the Attorney General, against an employer under title VII or the ADA, the respondent employer shall preserve all personnel records relevant to the charge or action until final disposition of the charge or the action."); Title 8 of the Administrative Code of the City of New York, Chapter 1, S 8–114 Investigations and investigative record keeping ("A demand [to preserve evidence] made pursuant to this subdivision shall be effective immediately upon its service on the subject of an investigation and shall remain in effect until the termination of all proceedings relating to any complaint filed pursuant to this chapter or civil action commenced pursuant to chapter four").

Before modifying any documents, including computer files, we strongly urge you to contact your attorney. Modern computer forensics has made it virtually impossible to conceal alterations and destruction of evidence. See, e.g., Zubulake v. UBS Warburg LLC, 229 F.R.D. 422 (S.D.N.Y. 2004)($20 million in punitive damages: defendant's destruction of evidence after notice from plaintiff's counsel constituted spoliation and warranted an adverse inference instruction).

If you maintain insurance, including general liability, Directors and Officers, Employment Practices Liability, or other insurance which might cover these claims, your failure promptly to notify your carrier could result in a loss of coverage.

Because of the rule's implicit requirement of specificity do not use a boilerplate document hold letter.

Rules 16 and 26(f)

Rule 26(f) requires parties to confer to develop a proposed discovery plan prior to the scheduling conference. Rule 26(f)(3) requires that parties "address any and all issues related to the disclosure or discovery of electronically stored information, including the form of production, and also.., discuss issues relating to the preservation of [ESI] and other information that may be sought during discovery." Rule 16 now calls for parties to discuss whether they can agree on an approach to production that protects against privilege waiver and requires counsel to discuss issues related to the formatting of electronic evidence. Amendments to Rule 16(b) provide that scheduling orders may include provisions on the disclosure or discovery of ESI.

We are now including an agreement in our report and proposed discovery plan on production of ESI and paper as follows:

The parties have agreed that ESI will be produced in its native format. That means that a document which was originally created as a Microsoft Word file or an Excel spreadsheet must be produced as a .doc or .xls file (or successor), without redaction of metadata. Emails will be produced in .msg or .pst file format. Emails shall be produced so that the full header is accessible and readable. Native paper documents will be produced as scanned .tif files.

Parties have agreed to produce their IT protocol on storage and overwriting of computer files and emails, if one exists.

If you prefer to receive .pdf scans you can specify pdf.

We are also telling our adversaries what we anticipate by way of searches for ESI during the Rule 16 planning meeting, and trying to get something incorporated into the discovery plan when possible. For example, where we have an allegedly bigoted decision maker we will let them know they will be getting request to search for all emails from/to decision maker which use language probative of prejudice. This might be summarized as:

The plaintiff intends to request a narrowly targeted search for all ESI communications containing search terms probative of prejudice from/to the decision maker. The parties do not anticipate any disputes at this time relating to such a search.

In a case where the defendant has a Faragher/Ellerth defense, we are going to include:

The plaintiff intends to request a narrowly targeted search for all ESI communications containing search terms to/from a small group of managers or supervisors who might have received or responded to complaints regarding the alleged harasser. The parties do not anticipate any disputes at this time relating to such a search.

The rule change also provides authority for asking the defendant to make its expert or IT director available to your expert before the first demand goes out; however, in typical cases, this is unnecessary. The new rules have not changed the basics of discovery. You should still ask your client who would have been most likely to create relevant materials, including emails, to whom they would have been sent, and then ask for "all documents and electronically stored information concerning . . . ."

When you receive the response you will be able to evaluate whether what has been produced is likely complete, or whether a more specifically targeted demand for ESI must be formulated––requiring the defendant to conduct computerized searches––which brings us another issue: who bears the cost of a demand that requires that electronically stored information be restored.

Rule 26(b)(2)(B) now provides that "A party need not provide discovery of electronically stored information from sources that the party identifies as not reasonably accessible because of undue burden or cost." Rule 45 has a similar provision which protects third parties from whom ESI has been subpoenaed. Rule 45(d)(1)(D).

Regarding Rule 26(b)(2)(B), the Advisory Committee wrote that:

Electronic storage systems often make it easier to locate and retrieve information. These advantages are properly taken into account in determining the reasonable scope of discovery in a particular case. But some sources of electronically stored information can be accessed only with substantial burden and cost. In a particular case, these burdens and costs may make the information on such sources not reasonably accessible.

It is plain that the only change contemplated by the rule is potentially shifting the cost of production in those unusual cases where it is more expensive to produce electronically stored data than paper. Such cases would not include the routine operation of restoring backed up emails by an IT department whose mission is to do this quickly, inexpensively and reliably for its corporate master. An example of an unusually burdensome request is to go back 10 years to a time when backup systems were used which no current machines can read.

There is no change in the rules regarding the requirement that the defendant bear the cost of determining what is relevant (scope) or privileged. The new rule speaks of "sources" which are expensive to gain access to, however, under Rule 26, the court still has the power to limit the scope of demands that are unduly broad, which seems to be the appropriate remedy rather than cost shifting. While the new rule seems to contemplate cost shifting only when the cost of a restore (source) is too high relative the potential benefits, courts are going to mix in concepts of scope in the cost shifting discussion.

The typical case is going to involve emails which have been backed up onto a storage drive4, requiring the restoration of a PST or DBX file, in which Outlook and Outlook Express store emails. Taking backed up ESI and restoring it into its original form (PST/DBX) is the raison d'etre of IT departments. They do this quickly and at no marginal cost to the defendant. There should no argument over cost shifting.

Searching through a party's own documents or ESI––the process of figuring out which emails are responsive or privileged––remains the burden of the responding party, unless it can show the demand is over broad, in which case the remedy is to trim it.

In Zubulake I, decided before the amendment to Rule 26, Judge Scheindlin conflated the cost of restoration, now evaluated under 26(b)(2)(B) with the scope of the request, which had always been considered under 26(b)(2)(C), long before ESI:

Thus, cost–shifting should be considered only when electronic discovery imposes an "undue burden or expense" on the responding party. The burden or expense of discovery is, in turn, "undue" when it "outweighs its likely benefit, taking into account the needs of the case, the amount in controversy, the parties' resources, the importance of the issues at stake in the litigation, and the importance of the proposed discovery in resolving the issues."

Zubulake v. UBS Warburg LLC 217 F.R.D., 309, *318, 2003 WL 21087884, **7 (S.D.N.Y. 2003).

Approach issues of scope and cost by asking this basic question: is it expensive to obtain production of the electronically stored information? If not, 26(b)(2)(B) is out of the picture, and the analysis proceeds solely under the very liberal standard of 26(b)(2)(C).

In Semsroth v. City of Wichita, 239 F.R.D. 630, 640–641 (D. Kan. 2006), the court mixed up 26(b)(2)(B) and 26(b)(2)(C), the general provision allowing the court to limit overbroad searches, because it relied on the analysis in Zubulake I:

Had the direct cost and expense of restoring and searching the back–up tape been larger in this case, as may often be the case with use of back–up tapes, the application of the cost–shifting factors outlined in the amendments to Rule 26(b)(2)(C) and Zubulake I would have easily supported a shifting of some of the costs to the Plaintiffs.

Coleman (Parent) Holdings, Inc., v. Morgan Stanley & Co., Inc., 2005 Extra LEXIS 94, (which ironically preceded the rule change), got it right:

As we now know, archive searches are quick and inexpensive. They do not cost "hundred of thousands of dollars" or "take several months."

Federal courts are going to be suspicious of knee–jerk assertions by defense counsel that a routine restore is going to be burdensome. There are plenty of computer experts who are ready, willing, and able to debunk defense counsel's claims regarding the cost of restoring data. In addition, counsel has the option of deposing the head of defendant's IT department, and asking how often the department is called upon to restore data, and how the defendant accounts for the cost.

Federal Rule of Evidence 502: Attorney–Client Privilege and Work Product; Limitations on Waiver

Production of large amounts of ESI creates a risk that a party will inadvertently produce privileged material or work product. Another risk is posed by hitting the send button on your email program. Sooner or later you are going to inadvertently include your adversary.

Prior to the passage of FRE 502 the parties could address inadvertent disclosure under Rule 26(b)(5)(B):

a party must promptly return, sequester, or destroy the specified information and any copies it has; must not use or disclose the information until the claim is resolved; must take reasonable steps to retrieve the information if the party disclosed it before being notified; and may promptly present the information to the court under seal for a determination of the claim. The producing party must preserve the information until the claim is resolved.

According to the Advisory Committee Notes, Rule 26(b)(5)(B) was intended to allow parties to contract in advance out of inadvertent privilege waivers caused by voluminous e–discovery responses "through agreements reached under Rule 26(f)(3) and orders including such agreements entered under Rule 16(b)(6) [which] may be considered when a court determines whether a waiver has occurred. Such agreements and orders ordinarily control if they adopt procedures different from those in Rule 26(b)(5)(B)." [italics added] These agreements are known as claw–back agreements.

Before FRE 502 a clawback agreement only protected the parties to the agreement from claims of waiver by parties to the claw back. What parties could not control is the effect of inadvertent productions in other contexts involving third parties. Third parties, such as the government, were not bound by the claw back agreement, and were free to treat inadvertent production of a privileged communication as a waiver, with potentially dire consequences.

An email from counsel warning a client against a risky tax strategy might have lost its protection in a subsequent tax proceeding brought by the federal government while remaining privileged in the original proceeding. Also, under some states' laws, just entering into a claw back agreement could be deemed a waiver of privilege.

For cases filed after its effective date, September 19, 2008, FRE 502 is a complete and elegant solution to the third party problem. It applies to previously filed cases at the discretion of the trial judge. FRE 502(b) Inadvertent disclosure, provides that

When made in a Federal proceeding or to a Federal office or agency, the disclosure does not operate as a waiver in a Federal or State proceeding if:
  1. the disclosure is inadvertent;
  2. the holder of the privilege or protection took reasonable steps to prevent disclosure; and
  3. the holder promptly took reasonable steps to rectify the error, including (if applicable) following Federal Rule of Civil Procedure 26(b)(5)(B).

Thus even if the parties have not entered into a clawback agreement, inadvertent disclosures in the context of a federal "proceeding" will not operate as a waiver of privilege, or the work product doctrine, in that proceeding, and this covers the wayward email to opposing counsel as well as ESI produced in discovery. However, FRE 502(d) goes further, and provides that:

A Federal court may order that the privilege or protection is not waived by disclosure connected with the litigation pending before the court––in which event the disclosure is also not a waiver in any other Federal or State proceeding.

As a consequence, if the court rules that there was no waiver in the initial proceeding, no third party can claim a waived in any other proceeding, including in state court cases. The Advisory Committee Notes explain that:

Under the rule, a confidentiality order is enforceable whether or not it memorializes an agreement among the parties to the litigation. Party agreement should not be a condition of enforceability of a federal court's order.

Under 502 the parties are still masters of their own fate if they enter into a claw back agreement under Rule 26(b)(5)(B), which may go further than FRE 502 in setting conditions on the right to avoid waiver. For example, the parties may find it desirable to require a demand of return or destruction of inadvertently produced material within a certain time frame following notice of the inadvertent production, failing which demand the inadvertent production may be deemed a waiver. Under 502(e) if the claw back "is incorporated into a court order" the terms have the same preclusive effects on third parties in state and federal courts.

1 If you have a Facebook page, do not make your clients your “Friends;” their postings on your “Wall” will effect a waiver of the attorney client privilege, and not an inadvertent one at that.

2 PeopleSoft was a company which sold a widely used Human Resource Management System which used a proprietary SQL database. http://en.wikipedia.org/wiki/PeopleSoft

3 Rule 16(b) provides that scheduling orders may include provisions on the disclosure or discovery of ESI. The new Rule 16(b) also allows for a case-management order adopting the parties’ agreements for protection against waiving privilege. As discussed below, new FRE 502 has radically changed the landscape, so discussion of clawback is postponed to the end of this article, where it is discussed in the context of FRE 502.

4 This is a very different situation than where you have to bring in an expert to conduct a forensic examination of a computer. Cf. Thielen v. Buongiorno USA, Inc., 2007 U.S. Dist. LEXIS 8998 (D. Mich. 2007)(requiring party seeking discovery to pay for expert to mirror image drive and conduct searches for evidence that party accessed a website)