Discovery Rules Raise More Questions Than Answers

By Lloyd B. Chinn
New York Law Journal
November 7, 2007

The shift toward electronic communications over the last 20 years has been well-documented; the courts have been wrestling with the challenges posed by electronic discovery ever since. Not until December 2006 did the Federal Rules of Civil Procedure ("the new rules") specifically address the unique challenges presented by electronically stored information (ESI). While the new rules brought much-needed attention to these challenges, they also left many questions unanswered. Unfortunately, 10 months later, the decisions interpreting the new rules have raised more questions than they answer.

Among the topics addressed by the December 2006 amendments, the following four are of particular practical import: (i) preservation of ESI and the related "safe harbor" issues; (ii) the question of reasonable accessibility and its role in determining discoverability and cost-shifting; (iii) form of production; and (iv) privilege.

PRESERVATION OF ESI

While the new rules refer to the preservation of evidence generally (Rule 26(f)(3)), they say little about the scope of that obligation. Once on notice of a litigation (or potential litigation), how far must a company go to preserve ESI? And what constitutes notice sufficient to trigger a preservation obligation?

The Advisory Committee Note to Rule 26(f) makes it clear that a preservation obligation should not be so onerous as to involve a "complete or broad cessation of a party's routine computer operations." That said, "good faith" may require a party to modify or suspend certain features of its information system's routine operations "to prevent the loss of information ... [I]ntervention in the routine operation of an information system is one aspect of what is often called a 'litigation hold.'"[FOOTNOTE 1] The lengths to which parties must go to satisfy these preservation obligations are, as yet, unclear.

Columbia Pictures Industries v. Bunnell[FOOTNOTE 2] answers the question of whether temporarily stored computer memory is subject to preservation obligations. There, the court in the Central District of California issued a preservation order for random access memory (RAM), which temporarily stores information from defendant's server, because the ESI was likely relevant and because the scope and volume of the data in issue were not too great to be preserved. The court credited testimony that the preservation obligation would lead to no more than 300 to 400 megabytes of additional storage per day, less than a single DVD's worth of information. The court emphasized that it was not proffering a general requirement that parties always preserve temporarily stored RAM. The court noted that its ruling was based in significant part on the particular relevance of the data to the plaintiffs' claims that their intellectual property had been pirated, and the information stored in RAM would be central to proving such a claim.

Although technically a case about production, not preservation, Disability Rights Council of Greater Washington v. Washington Metropolitan Transit[FOOTNOTE 3] provides some insight regarding e-mail preservation. There, plaintiffs made a motion to compel production of backup tapes because defendant had not stopped the automatic purge feature on its e-mail system. The D.C. district court granted the motion, holding that defendant should have preserved the accessible information, rather than allowing it to be automatically purged. The defendant defended its decision not to preserve e-mail in an accessible format on the grounds that it had already ameliorated the conditions at issue in plaintiffs' discrimination lawsuit. The court rejected that argument and held that plaintiffs were entitled to discovery of information that defendant should have preserved in an accessible format to determine whether defendant's assertion was correct, and if it wasn't, the degree to which injunctive relief and/or damages would be appropriate. Notwithstanding this decision, if the conduct at issue in a litigation occurred entirely in the past, there is presumably no ongoing requirement to preserve newly created e-mail in an accessible format. Unfortunately, there are not, as yet, any cases addressing this issue under the new rules.

The Connecticut district court in Doe v. Norwalk Community College[FOOTNOTE 4] imposed sanctions on a party on a variety of grounds, including the defendant's failure to preserve evidence. The court held that the defendant could not avail itself of Rule 37's "safe harbor" provision because (among other things) it had not preserved the hard drives of a departing employee and of an employee who had since received a new computer. Both employees were apparently actively involved in the allegations at issue in the lawsuit. The court, in concluding the defendant had failed to preserve evidence, also cited the defendant's failure to halt the routine destruction of backup tapes.

This case appears to stand for fairly sweeping preservation obligations for hard drives and backup tapes that could be both expensive and time-consuming. The court's observations in this regard, however, were made in a context in which the court had also determined that the defendant had engaged in other wrongs, including the selective deletion of apparently relevant e-mail. Significantly, the Advisory Committee Note to Rule 37(f) states that the preservation of inaccessible sources (such as backup tapes) of ESI "depends on the circumstances of each case" and notes, "[o]ne factor is whether the party reasonably believes that the information on such sources is likely to be discoverable and not available from reasonably accessible sources."

In general, the duty to preserve ESI (i.e., not destroying, modifying, or over-writing it) arises once a party "reasonably anticipates" litigation; then the party must suspend its routine document retention/destruction policy and implement a litigation hold to ensure the preservation of relevant documents.[FOOTNOTE 5] But does that mean that every demand letter triggers all sorts of far-reaching preservation obligations? In Cache la Poudre Feeds, LLC v. Land O'Lakes, Inc.,[FOOTNOTE 6] the district court in Colorado held that a letter from counsel that did not expressly threaten litigation, but rather implied that her client preferred and was willing to explore a negotiated resolution, did not give rise to preservation obligations.

In Oxford House Inc. v. City of Topeka,[FOOTNOTE 7] the plaintiff claimed that the City of Topeka's failure to preserve the e-mails constituted spoliation of evidence. But the district court in Kansas, without referring to the new rules, disagreed, holding that the evidence was likely destroyed pursuant to the normal operation of its computer system before a duty to preserve had arisen.

REASONABLE ACCESSIBILITY

A new feature of the rules is the recognition that certain forms of ESI are more difficult to retrieve than others. The rule-makers settled on the concept of "reasonable accessibility" for the purpose of allocating burdens between requesting and producing parties to a motion to compel. Traditionally, parties resisting discovery because of its undue burden were responsible for establishing the bona fides of that claim. Under the new rules, if a producing party establishes that the sources of discovery being sought are not reasonably accessible, the burden shifts to the requesting party to establish its entitlement to the information.

Courts determine "accessibility" by balancing the need for ESI against the cost and difficulty of obtaining it. Under Rule 26(b)(2), if parties cannot resolve that question, they may seek judicial intervention via a motion to compel discovery or a motion for a protective order. To demonstrate that ESI is not "reasonably accessible," the producing party must show that production would impose undue burden or cost. Once a producing party establishes that the discovery sought comes from an inaccessible source, it need not be produced unless the requesting party establishes "good cause."

Courts determine whether "good cause" exists by examining whether the "burdens and costs can be justified in the circumstances of the case." The Advisory Committee Note sets out a number of appropriate considerations, including (among others): the specificity of the request, any failure to produce the information when it was available in a more accessible format, and the information's importance to the case.[FOOTNOTE 8] For example, the court in Disability Rights Council[FOOTNOTE 9] held that good cause existed to compel production of inaccessible backup tapes because of the party's failure to prevent the automatic purging of the accessible e-mail, which is why the information was only available on backup tapes.

In Guy Chem. Co. v. Romaco AG,[FOOTNOTE 10] the Indiana district court held that search-and-production costs approximating $7,200 rendered ordinary ESI "not reasonably accessible" because the ESI was sought from a non-party. However, it granted Romaco's motion to compel on condition that it reimburse production costs. Likewise, in In re Veeco Instruments Inc. Securities,[FOOTNOTE 11] the court in the Southern District of New York granted plaintiff's motion to compel production of documents despite defendants' claims that plaintiff unduly delayed in bringing the motion and that restoring and searching backup tapes would be extraordinarily burdensome and costly. The court granted plaintiff's motion because the ESI could constitute important relevant evidence (or lead to admissible evidence), was not reasonably available from any other easily accessed source, and the discovery request was specific.

Even if good cause warrants production, courts may still employ a further 26(b)(2)(B) analysis to determine cost-allocation. For example, the court in In re Veeco Instruments Inc. Securities[FOOTNOTE 12] ordered defendant to produce ESI at its own cost and then submit an affidavit detailing its search results, time expenditure and costs. The court indicated it would then consider cost-shifting. In Haka v. Lincoln County,[FOOTNOTE 13] plaintiff sought four terabytes (i.e., approximately 500 billion typewritten pages) of documents, notes, memos, e-mails and metadata that existed on two external hard drives. After conducting a Rule 26(b)(2) analysis, the court in the Western District of Wisconsin ultimately ordered the parties to split the cost of keyword searches of e-mails 50/50 and forced defendants to pay 100 percent of privilege/relevance review costs.

FORM OF PRODUCTION

The new rules attempt to offer some guidance as to the form in which ESI should be produced. Amended Rule 34(b) permits, but does not require, the requesting party to select the form of production. If the producing party objects to the requested form of ESI production (or if the requesting party failed to specify a form), the producing party must specify the form it intends to use. If the requesting party does not specify a form of production, the producing party "must produce the information in a form or forms in which it is ordinarily maintained or in a form or forms that are reasonably usable."

Several cases have examined disputes arising in connection with the production of paper printouts of ESI. In Auto Club Family Ins. Co. v. Ahner,[FOOTNOTE 14] nonparties filed a motion to quash defendants' subpoena on grounds that under Rule 45(d)(1)(C), they need not produce information in both paper and electronic forms. Allegedly, they preferred producing hard copies because they mimicked the ESI, were the form used by their engineers and supplied to clients, and would not compromise their engineering reports' authenticity and integrity. In denying the motion, the court in the Eastern District of Louisiana noted that for files stored electronically in the ordinary course of business, producing them in hard copy did not by itself excuse a party from also producing them in electronic form. The court further observed that hard copies were unlikely to contain all the relevant materials, including working papers and e-mails.

Likewise, in 3M Company v. Kanbar,[FOOTNOTE 15] 3M responded to document requests by printing and copying documents (mostly from electronic sources) and placing them in boxes available for inspection. While holding that 3M was not obligated to organize or itemize produced documents, the court in the Northern District of California ordered it to provide all previously produced ESI in an electronic, reasonably usable format. Similarly, in Scotts Company LLC v. Liberty Mutual Insurance Co.,[FOOTNOTE 16] plaintiff moved to compel electronic data in the form in which it was maintained instead of the hard copy in which defendant produced it. The court faulted both the requesting party for failing to specify a form in which the information should be produced and the producing party for failing to advise the requesting party in advance of the form in which it intended to produce the requested information. In ordering the parties to meet and confer regarding the issue, it referred to the Advisory Committee's admonition that producing parties who normally maintain information in an electronically searchable form should not produce it in a form that "removes or significantly degrades this feature."

In a case addressing native format production, the plaintiffs in In Re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation[FOOTNOTE 17] stripped metadata from electronic documents, printed them, and then converted them into text-searchable electronic documents without metadata. Although the court in the Eastern District of New York found that the information had been produced in a "reasonably usable form," it nonetheless determined that changing the information's form degraded its available searching features. Thus, the court ordered that any subsequent information be produced in its native format. It declined to require re-production of already provided ESI as defendants had failed for several months to object to plaintiffs' rolling production. This case is significant because native format production poses legitimate concerns to producing parties because of the risk of producing privileged metadata.

Under Rule 34(a)(1), a party may request an opportunity to sample an adversary's ESI to better understand the type of information and system used. For instance, in Zurich American Insurance v. ACE American Reinsurance,[FOOTNOTE 18] the court in the Southern District of New York ordered sampling of all defendant's insurance claim files to find relevant information and further held that defendant is not entitled to sympathy for using "an opaque data storage system" that did not organize its claims in any useful way. However, the court in Scotts Company LLC??[FOOTNOTE 19] denied plaintiff's request to have a computer forensic expert search defendant's computer systems, network servers and databases because the federal rules do not allow for unrestricted access to an adversary's computer systems without a qualifying reason. The court emphasized that mere suspicion that defendant is withholding discoverable information is insufficient to permit such an intrusive examination of its computer system.

PRIVILEGE

New rule 26(b)(5)(B) addresses the procedure by which parties may address inadvertent waivers of the privilege, a common problem when producing large quantities of ESI, particularly e-mail. As the Advisory Committee Note makes clear, the new rule is purely procedural in nature, and it "does not address whether the privilege or protection that is asserted after production was waived by the production."[FOOTNOTE 20] There are proposals to amend Federal Rule of Evidence 502 to address various substantive issues relating to the privilege.

Proposed Rule 502(b) clarifies that a disclosure made in a federal proceeding will not operate as a waiver in a federal or state proceeding if the disclosure was inadvertent, the holder of the privilege took reasonable steps to prevent disclosure, and the holder took reasonable steps to rectify the error, including following new rule 26(b)(5)(B). Proposed Rule 502(d) provides that a court order stating that privilege will not be waived by disclosure binds all persons and entities in all federal or state proceedings, whether or not they are parties to the litigation.

CONCLUSION

The December 2006 amendments were intended to provide courts and practitioners with much-needed guidance in the realm of e-discovery. Yet, in a survey of the opinions applying them, few litigation trends are readily apparent. Thus, the extent to which the amendments have provided illumination remains unclear. What is apparent, however, is that e-discovery will increasingly affect both courts and litigants. As the new legal frontier, it remains ripe for exploration.

Lloyd B. Chinn is a partner in Proskauer Rose's labor and employment department. Abigail Perdue, a law clerk at the firm, contributed to this article.