Chicken Little-gation In the Electronic World

Are you legal, or are you liable? The verdict after year one of the amended FRCP.

A year ago, the rules that govern litigation in our federal courts were amended to require lawyers and clients to deal head on with electronically stored information (ESI). On December 1, 2006, changes to the Federal Rules of Civil Procedure (FRCP) went into effect. Prior to the amendments, litigants routinely ignored ESI and, operating under a doctrine of "mutually assured destruction," refrained from seeking it from their adversaries for fear they would be compelled to do the same.

But in the last few years, things changed. Government investigators and plaintiffs' class action attorneys were not hampered by the same mutuality concerns; they had little to lose and everything to gain by aggressively pursuing ESI. So, Enron, Arthur Anderson, Tyco, Morgan Stanley, and many others were forced to turn over huge amounts of ESI under the glare of the media's spotlight, spawning more investigations and demands for ESI.

At the same time, judges were making new law on questions like: When does the duty to preserve ESI trigger? What types of ESI must be saved, searched and turned over? In what form? Who pays? What happens if ESI is lost? These decisions often were in conflict, and the cries for standardization grew even louder.

And, all along, the volume of ESI exploded. According to a recent IDC study, by 2010, there will be more bytes of ESI than grains of sand on Earth. Litigation in the electronic age is no day at the beach.

Thus, changes to the Federal Rules of Civil Procedure (FRCP) were both inevitable and long overdue. Still, critics feared the amendments would bring the court system to its knees after all, nearly 1 billion emails a day are now created. Requiring lawyers to turn over that information would further delay already protracted litigation timetables. Other experts predicted nothing would change because the amendments merely codified current litigation practices.

So what's the initial verdict after the first year?

For the most part, it's a split decision. The rule-makers appear to have struck the right balance between hard-wiring ESI requirements and leaving enough unsaid to let the particular facts and circumstances control each case. Still, a few themes have emerged.

Folk Still Don't "Get it"

Despite all the publicity about the perils of e-discovery that presaged and followed the adoption of the new rules, lawyers and clients still do the darnedest things.

For example, in the Qualcomm v. Broadcom patent infringement suit, a Qualcomm employee revealed during testimony at trial that 21 key emails had been withheld during discovery. Those emails supported one of Broadcom's defenses namely, that Qualcomm helped set industry standards at the same time it sought patent coverage over those standards. After that startling revelation, the court ordered Qualcomm to conduct additional searches, which led to the discovery of more than 200,000 pages of ESI. The exasperated judge found Qualcomm and its lawyers had engaged in "aggravated litigation abuse" and ordered the company to pay an estimated $10 million in Broadcom's legal fees. The court also has taken aim at the lawyers and initiated proceedings that could lead to monetary sanctions or disciplinary action. On the day those proceedings began, Qualcomm's general counsel abruptly resigned, citing "personal reasons."

The new rules do not appear to have changed human behavior, but they have helped to bring lapses in human judgment to light. Over the past year we learned, among other startling news, that Intel "lost track" of hundreds of employees and their ESI in the company's massive antitrust case with AMD; that Whole Foods' CEO anonymously posted messages about his company's and his performance (and his hair!) on a Yahoo stock forum; that companies caught backdating stock options openly discussed their practices in email; and that when it was suggested in an email discussion that the methods Hewlett Packard used to investigate its own directors might be improper, the company's former chief ethics officer responded, "I shouldn't have asked."

Privilege Remains a Problem

Another emerging theme is the enormous strain that ESI places on the attorney-client privilege. More data means more risk of inadvertent disclosure and thus more time and money to review ESI to preserve the privilege. In the 2007 Fulbright & Jaworski Fourth Annual Litigation Trends Survey, more than half of the general counsel surveyed stated privilege review consumed at least 5% of their total litigation budgets and nearly one in five GCs stated it was as high as 30-50%!

While the FRCP amendments contain a so-called "claw back" provision that requires parties to return, sequester, or destroy inadvertently produced privileged documents pending a court's determination on the waiver question, the new rule did nothing to alter the substantive law of privilege. But, proposed amendments to the Federal Rules of Evidence (FRE) now before Congress may do just that by setting a single standard of "reasonableness" for deciding if the privilege is waived and limiting the scope of waiver even when it occurs.

Doubts Over What to Save

Under the amendments, litigants must turn over only "accessible" ESI. Relevant "inaccessible" data should be preserved, but not turned over absent court order. But, because the rules nowhere define the two buckets, critics predicted that everything from automobile "black boxes" to copy-machine hard drives now would be discoverable. For the most part, these dire forecasts have not come true, although this summer critics were buzzing over the Columbia Pictures v. Bunnell case in which the court required the defendants to turn over ESI kept on a computer's temporary random access memory (RAM). RAM is not typically thought of as "accessible" information, but in Bunnell, it is where key data concerning defendant's alleged copyright infringement of computer video files lived. While critics claimed that Bunnell would be used as a "weapon of mass discovery," thus far it has been a dud.

Companies Take Electronic Discovery Into Their Own Hands

Given the increased risks and costs, it is no surprise that many companies are trying to wrest control over the discovery process. More companies are now directing outside their counsel to leverage technology to automatically organize huge data collections, help understand foreign languages and detect privilege and thereby drive down the costs and mistakes that result from fatigued human review. The rule-makers get it, too. The Advisory Committee Notes to proposed FRE 502 provide: "Depending on the circumstances, a party that uses advanced analytical software application and linguistic tools in screening for privilege and work product may be found to have taken 'reasonable steps' to prevent inadvertent disclosure."

In short, in the 12 months since adoption of the new discovery rules, the sky did not fall. But, for some, it grew darker and more expensive to prop up.

Stephen D. Whetstone, Esq. is Vice President and Michael S. Simon, Esq. is Legal Associate for Stratify, Inc. For more information or to contact them, visit www.stratify.com.


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