The Background:  These days, just about every business, large and small, depends on electronically created and stored records to operate. Typical accounting transaction records or inventory and sales records have been digitally stored for years. However, today, a company’s computer files are likely to include reams of internal memos, research records, and e-mail, some or all of which never were intended to be viewed by anyone outside the company, much less a litigation adversary.

 

Until a few years ago, businesses had to make a conscious decision to keep documents. Once the decision was made that certain paper records might be useful or needed in the future, they were boxed, labeled and stored. With the advent and expansion of electronic records, and especially e-mail, the opposite has occurred. E-documents are forever, unless you make a conscious decision to destroy them completely.

 

Moreover, many in business use e-mail as if it was both a formal letter and a very causal "e-conversation." This creates huge electronic trails of both useful correspondence and frequently ill-conceived statements that should never see the light of day. People often mistakenly believe that company e-mail is somehow automatically confidential, and therefore nothing will ever come of an off-handed and imprudent comment.

 

The volume of cyber documents is staggering. One reliable estimate is that U.S. businesses automatically store the equivalent of a billion pages of new electronic data on their computers each day.

 

The Problem:  As you may know, "electronic discovery" or "e-discovery", is one of the hottest issues in commercial litigation. E-discovery refers to methods of finding computer-based records and documents from a lawsuit opponent or regulatory agency during discovery or an investigation. The point is to look for the proverbial "smoking gun" that will win the lawsuit or nail the investigation target with wrongdoing. Electronic discovery creates a myriad of new responsibilities, risks, and opportunities for businesses. You, as a business owner, may become either the target or the initiator of an electronic discovery request.

 

Electronic discovery is more than just a simple, cheap means of responding to requests for information and documents in litigation. It involves searching all the target company’s computer systems to find and produce every relevant, nonprivileged document described in the discovery request. Even a small company may have thousands of electronically stored items falling within the discovery request. The cost of searching and reviewing these documents, to provide all that is required and protect all that is not, can be huge.

 

Worse, beyond conventional records, there are two types of data most people are not even aware exist - "metadata" and "deleted" documents. "Metadata" is data hidden within many computer documents such as word-processing and spreadsheets. It details the document’s origin and history - authors, editing changes, and times when changes were made. Such information, if left intact, could be critical in the right case.

 

"Deleted" data is hidden because most operating systems do not actually erase data from a hard drive when you hit the "delete" key. Rather, they simply make that space on the hard drive available for new data if and when another program needs it. Consequently, with hard drives getting larger all the time, the "deleted" data may remain undisturbed on the computer or network hard drive for months - or even years. Many IT professionals make a very good living using software specially designed to retrieve this type of information from a litigant’s hard drive.

 

What is "Fair Game?"  Recent court decisions and proposed new federal court rules and procedures could result in litigation discovery costs as high as - or higher than - the underlying claim. The good news is, by planning and implementing a good electronic document retention policy in advance of litigation, these new and largely unpredictable costs of compliance with the new discovery paradigm can be avoided or mitigated.

 

When litigation or a regulatory agency investigation occurs, virtually everything on a party’s computer system that may have anything to do with the litigation or investigation’s subject matter becomes relevant and, unless it is privileged, it is discoverable. The costs associated with producing those documents usually fall upon the producing party. They are routinely high, and can be staggering. Electronic discovery cost may include:

Time lines for getting all of these tasks done are short, and there may be disagreement about what is required. This can result in additional legal costs to settle those issues as well as court sanctions if you lose the argument. Sanctions may result in fines, money for costs, or exclusion of your evidence from trial.

 

The Smoking Gun:  In extreme cases of ineptitude or reluctance to comply with discovery requests, the court may order the offending party to allow an outside IT professional direct access to its computer system for a full-scale search — especially for metadata and "deleted" files. Recent court decisions have come down hard on litigation parties when the judge concluded the party either did an inadequate job of producing all relevant, non-privileged electronic documents or intentionally omitted or destroyed some of them after the time when it should have "reasonably anticipated" the litigation. Stories of midnight paper and electronic shredding parties after the claim has arisen do not sit well with the guys in black robes.

 

A good example is a seemingly routine gender discrimination suit filed in New York in 2002 (Zubulake v. UBS). The federal judge presiding over Zubulake saw evidence that UBS was playing fast and loose with the electronic discovery rules, so he issued five pre-trial opinions on the electronic discovery disputes between the parties. All of them granted broad access to Zubulake’s attorneys and consultants to directly access UBS’ records to look for data; and UBS was severely sanctioned for early records destruction. The basic lessons from Zubulake are:

The Accidental Disclosure:  Another critical concern for businesses conducting electronic discovery is the problem of accidentally producing confidential data. There may be dire consequences when one or more legally-privileged documents are not identified and removed before delivery to the other side. The rush to respond completely and on time to a comprehensive request for electronic records is a recipe for such oversights. Proposed amendments to the federal rules of procedure governing electronic discovery would allow parties to "take back" such confidential data under certain circumstances. These amendments should help, but damage from accidental production of sensitive data may be irreparable, regardless of admissibility. Moreover, critics of the proposed rules contend they will multiply expenses, create new means of obstruction, and increase the risk of sanctions. There are effective ways to deal with all these difficulties, and good attorneys either know those ways now, or will adapt quickly.

 

 "Safe Harbor" Document Destruction:  So the to avoid sanctions, all a business must do is to keep everything forever, right? Impossible! Fortunately, both the courts and the legislatures have begun to recognize that - legally and financially - companies cannot be required to keep all their electronic data forever. In judicial opinions, the proposed amendments to the federal rules, and similar proposed rule changes in many states, provisions are being made for "safe harbor" rules. Under such rules, a company that adopts and adheres to a reasonable and responsible document retention and disposal policy for electronic and paper documents will not be sanctioned for destroying old paper or electronic records under the guidelines of that policy. Further, once the policy is in place, follow it religiously.

 

So What Do I Do?  Of course, the best solution is to run the business so you can avoid litigation. But even a business that does everything right may find itself involved in a dispute. The best way to prepare for such a dispute is a long-established, systematic document retention and disposal policy for both paper and electronic document. A proper policy will identify various types of company records and establish time lines for archiving and eventual destruction of those records. The prudent company will take steps now to put such a policy in place, with the help of competent legal counsel, records managers and IT professionals - internal or contractors. Of course, the policy must take into account the sensitivity of the material and any legal or practical requirements for retaining it. For example, property ownership records likely will be retained for the entire period of ownership plus a lengthy period of time thereafter. Tax records have specific statutory time lines.

 

Once a proper policy has been put in to place, the company needs to make sure that it both follows it and documents the compliance. Establish regularly scheduled document disposal methods and make the appropriate staff members responsible for executing or verifying disposal of all documents.

 

While developing, implementing and complying with an electronic document retention policy is complex and costly, it is manageable with help. By contrast, companies that fail to address electronic discovery risk a very expensive lesson in the future.