Technology Gives Federal Rules a Big Shove

By Katherine W. Wittenberg

On December 1, 2006, certain amendments to the Federal Rules of Civil Procedure that concern electronically stored information took effect and now “govern in all proceedings . . . commenced and, insofar as just and practicable, all proceedings . . . pending.” 2006 US ORDER 20 (C.O.20).

In drafting the amendments, the Advisory Committee recognized that there has been a dramatic growth in electronically stored information and in the variety of systems for creating and storing this information. Indeed, estimates suggest that more than 90 percent of documents today are created electronically, and a desk worker may receive an average of 50 emails each day.

The Advisory Committee Note to Rule 34 states that “[l]awyers and judges interpreted the term ‘documents’ to include electronically stored information because it was obviously improper to allow a party to evade discovery obligations on the basis that the label had not kept pace with changes in information technology.” Fed. R. Civ. P. 34 (Advisory Comm. Note, 2006). “The wide variety of computer systems currently in use, and the rapidity of technological change, counsel against a limiting or precise definition of electronically stored information.” Id. Rather, the definition of electronically stored information must be “flexible enough to encompass future changes and developments” in technology and be consistent with the “expansive approach” to discovery of electronic documents. Id.

Amendments to Discovery Rules

Several rules of civil procedure have been affected to the extent that they include obligations concerning electronically stored information. Those rules include Rule 16 (pretrial conferences), Rule 26 (initial disclosures), Rule 33 (option to produce business records in response to interrogatories), Rule 34 (production of electronically stored information), Rule 37 (failure to make disclosures or cooperate in discovery), and Rule 45 (subpoenas).

Rule 16

In connection with scheduling orders, Rule 16 now permits a district judge or magistrate to include within the scheduling order “provisions for disclosure or discovery of electronically stored information.” Fed. R. Civ. P. 16(b)(5).

Rule 26

Initial disclosures, governed by Rule 26, now require that parties, without awaiting a discovery request, provide a copy or description of all documents, tangible things, and electronically stored information. Fed. R. Civ. P. 26(a)(1)(B).

A limitation on this requirement, however, is 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.” Fed. R. Civ. P. 26(a)(2)(B). In response to a motion to compel production, a court may order production of the “not reasonably accessible” information upon a showing of “good cause.” Id.

The existing ability for a court to curtail discovery remains, regardless of whether it includes electronically stored information, permitting a court to fashion an appropriate discovery order that takes into account: (i) whether the information is obtainable from another source; (ii) whether the party had ample opportunity to obtain the information sought; and (iii) whether the burden of production outweighs its benefit in the case. Fed. R. Civ. P. 26(b)(2).

Rule 26 also addresses the inadvertent disclosure of privileged information. Should a party inadvertently disclose electronically stored information that is protected by a privilege, the producing party should notify the receiving party who is then obligated to “promptly return, sequester, or destroy the specified information and any copies it has received and may not use or disclose the information until the claim is resolved.” Fed. R. Civ. P. 26(b)(5).

Rule 33

When the answer to an interrogatory may be ascertained from the responding party’s business records, the previous Rule 33(d) permits the responding party to answer the interrogatory by specifying the records from which the answer may be derived by giving the requesting party an opportunity to examine and copy the business records. The current, amended Rule 33(d) permits a responding party to identify responsive business records, including electronically stored information.

In specifying electronic business records in response to an interrogatory, a party may be required to give direct access to its electronic information system, “but only if that is necessary to afford the requesting party an adequate opportunity to derive or ascertain the answer to the interrogatory.” Fed. R. Civ. P. 33 (Advisory Comm. Note, 2006). The responding party may even be required to provide some combination of technical support, information on application software, or other assistance. Id. A party opting to identify electronic information should first determine whether the risk of disclosure of sensitive information or access to computer systems is more desirable than providing the requested information by another means. Id.

Rule 34

The 34(a) requirement that, if necessary, a party producing electronically stored information translate it into a reasonably usable form does not address the issue of translation from one human language to another. Fed. R. Civ. P. 34 (Advisory Comm. Note, 2006, citing In re P. R. Elec. Power Auth., 687 F.2d 501, 504–510 (1st Cir. 1989)).

In addition to inspecting and copying, a demanding party may request an opportunity to test or sample materials. This request may be curtailed by the Rule 26(b)(2) and 26(c) limitations against burdensome and intrusive discovery requests. The comments point out that permitting a requesting party to test or sample materials “is not meant to create a routine right of direct access to a party’s electronic information system” and “courts should guard against undue intrusiveness resulting from inspecting or testing such systems.” Fed. R. Civ. P. 34 (Advisory Comm. Note, 2006).

According to Rule 34(b), electronically stored information should be produced as it is kept in the usual course of business and should be organized and labeled to respond to the request. The production of the information should not create unnecessary obstacles for the requesting party. A responding party that does not produce the information in its “ordinarily maintained” and “reasonably usable” form risks being ordered to produce the same information again in an additional format that is more to the requesting party’s liking. Fed. R. Civ. P. 34(b) (Advisory Comm. Note, 2006).

An important caveat to producing electronically stored information is that the responding party may not tamper with the original electronic form in a way that “makes it more difficult or burdensome for the requesting party to use the information effectively in the litigation.” Id. For example, if the responding party ordinarily keeps its electronic information in a manner that is searchable by electronic means, the responding party may not alter the information in a way that removes or significantly degrades this feature. Id.

Rule 37

Rule 37, which deals with failure to make disclosures or cooperate in discovery, is amended to add a provision at subsection (f) that states: “Absent exceptional circumstances, a court may not impose sanctions . . . on a party for failing to provide electronically stored information lost as a result of routine, good-faith operation of an electronic information system.” Fed. R. Civ. P. 37(f). This amendment focuses on “routine alteration and deletion of information that attends ordinary use” that occurs without “culpable conduct” by the responding party.

Good faith may require some preservation action by the responding party. When a party is obligated to preserve information because of pending or “reasonably-anticipated litigation,” a party may initiate a so-called “litigation hold” and attempt to preserve electronically stored information. Effort taken to preserve such information will be relevant in fighting off a motion for sanctions should the information be lost.

Note that attorneys may be involved in such preservation. Zubulake v. UBS Warburg LLC (“While, of course, it is true that counsel need not supervise every step of the document production process and may rely on their client in some respects, counsel is responsible for coordinating her client’s discovery efforts.”). Counsel should become familiar with the client’s document retention policies and information technology systems. Id. This process will be achieved by communicating with IT personnel and key witnesses to understand the systems and ensure complete production can be made of electronically stored information. Id. Counsel should instruct employees to produce electronic copies of relevant files and ensure that backup electronic files are marked and stored. Id.

The obligation to preserve information when litigation is “reasonably anticipated” raises the question of when a potential litigant should start taking action to preserve electronically stored information. Expectation of litigation may arise from an investigation or audit initiated within a company or by a governmental agency or may arise as a result of significant business events, such as mergers, acquisitions, or bankruptcy. Anticipated litigation, sparking an obligation to preserve electronically stored information, may arise once supervisors are aware of a potential employment discrimination claim. See Zubulake v. UBS Warburg LLC, 220 F.R.D. 212 (S.D.N.Y 2003) (defendant should have anticipated litigation when its supervisors became aware of plaintiff’s discrimination claims, rather than when an EEOC complaint was filed several months later). This is not a burden imposed only on defendants: A plaintiff who anticipates litigation may not destroy electronically stored information before filing suit. See Rambus, Inc. v. Infineon Techs. AG, 220 F.R.D. 264 (E.D. Va. 2004).

While the rule restricts the use of “sanctions,” it does not restrict a court’s ability to order other remedial action, such as requiring production of additional witnesses, requiring response to further written discovery, or order relief intended to “provide substitutes or alternatives for some or all of the lost information.”

Rule 45

Finally, Rule 45 is amended to specify that a subpoena may be used to obtain electronically stored information. Rule 45 is consistent with the other amendments discussed above insofar as a person or entity must produce electronically stored information in its “ordinarily maintained” manner and in a form that is “reasonably usable” and should not have to produce the same information in more than one form unless so ordered by the court for good cause. Fed. R. Civ. P. 45 (Advisory Comm. Note, 2006). A subpoenaed person or entity may object to production on the grounds that electronically stored information is “not reasonably accessible because of undue burden or cost.” Fed. R. Civ. P. 45(d)(1)(D).

Failure to Produce Relevant Information Can Be Costly

The cost of ignoring discovery requests or orders related to electronically stored information can be significant. As a few recent cases illustrate, courts are willing to impose severe penalties for the destruction of or failure to preserve electronically stored information. Many of these cases discuss spoliation of evidence without reference to statutory discovery obligations. Now that requirements to produce electronically stored information have been codified, at least at the federal level, the penalties for failure to preserve and produce electronically stored information may become even more dramatic.

In 2005 a Florida court found that Morgan Stanley had failed to review backup tapes and produce electronically stored information requested by the plaintiff. Finding Morgan Stanley’s discovery failures to be deliberate and in bad faith, the court instructed the jury that it could assume that Morgan Stanley permitted fraud. The plaintiff was awarded $1.4 billion in damages. Coleman (Parent) Holdings, Inc. v. Morgan Stanley & Co., 2005 WL 679071 (Fla. Cir. Ct. 2005).

A Delaware court, after finding that key employees had destroyed electronic evidence despite a court order, ordered defendant to pay plaintiff millions of dollars for improperly sold or optioned licenses. GE Harris Ry. Elec., LLC v. Westinghouse Air Brake Co., 2004 U.S. Dist. LEXIS 16329 (D. Del. 2004).

Another court granted a requesting party more than half a million dollars in sanctions as well as an adverse jury instruction when it found that the responding party failed to issue a preservation order in light of anticipated litigation. The responding party’s failure to preserve electronically stored information resulted in the destruction of relevant emails that the court determined to be within the scope of requested “documents.” MOSAID Techs. Inc. v. Samsung Elecs. Co., 2004 U.S. Dist. LEXIS 25286 (D.N.J. 2004).

In a stunning ruling, a judge who found that certain Philip Morris corporate officers had failed to preserve electronically stored information in compliance with the court’s order and the company’s own document-retention policy ordered Philip Morris to pay almost $2.75 million in sanctions and barred the officers from testifying at trial. United States v. Philip Morris USA, Inc., 2004 U.S. Dist. LEXIS 13580 (D.D.C. 2004).

Going forward, attorneys should be much more involved in the preservation and collection of electronically stored information. Even before a lawsuit is filed, counsel should confer with their client to discuss document-retention policies, a preservation policy, the scope of electronically stored information that will likely be relevant to the claims, the identity of personnel with access to the electronic information, and the IT procedures for obtaining and producing electronic documents. Now, rather than waiting until the press of litigation, is the time to begin these discussions with clients.

These amendments are significant to practicing lawyers representing both defendants and plaintiffs at the federal level and perhaps even at the state level (as state courts follow federal discovery rules as guidelines). Now that the amendments to the discovery rules are in effect, obligations to preserve and produce electronically stored information have become much greater, and attorneys and their clients should be aware of the dramatic penalties that could be imposed for failing to fulfill obligations regarding discovery of electronically stored information.

Katherine W. Wittenberg is an attorney with Beatty & Wozniak, P.C., a Denver-based law firm focused on energy and natural resources law.