Electronic Document Discovery Issues in a Post Zubulake World

February 2006

I.          Balancing The Costs Of Electronic Discovery

As we all know, the scope of discovery is and must be broad.  The broad scope of discovery is particularly troublesome, however, in the context of electronic discovery.  E-mail usage and electronic file generation have increased over the last ten years at an astounding rate.  The Sedona Group estimate that over 90 percent of information created today is first generated in digital format, that 70 percent of corporate records may be stored in electronic format, and that 30 percent of electronic information is never printed to paper.  The Sedona Principles: Best Practices, Recommendations & Principles for Addressing Electronic Document Production, 3 (Jan. 2004).  These figures reinforce the need for legal hold policies as discussed below. They also highlight the complicated nature of modern-day discovery and the substantial costs that can be associated with gathering, recovering, reviewing, and producing records considering the availability of information using backup tapes, metadata, defragmentation and similar resources. 

The proliferation of the use of electronic data by businesses has resulted in vast accumulations of electronic records.  While a few thousand paper documents are enough to fill a file cabinet, a single computer tape or disk drive the size of a small book can hold the equivalent of millions of printed pages.  Often, the costs of restoring, reviewing and producing these records is prohibitively high.  In some cases, those costs that are typically assessed to the responding party may be shifted to the requesting party. 

The Federal Rules of Civil Procedure guide courts to limit discovery where “the burden or expense of the proposed discovery 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.”  FRCP 26(b)(2).  Although the Federal Rules were recently revised and amended, many have argued for another update of the Rules to specifically address nuances of electronic discovery.  In 2004, the Civil Rules Advisory Committee held meetings in response.  Out of their meetings came a number of proposed amendments to the Rules that were approved by the Standing Committee on Rules of Practice and Procedure in June 2005 and received further approval by the Judicial Conference at its September 2005 session.  If approved by the Supreme Court and promulgated by May 1, 2006 , these amendments will become effective December 1, 2006 .

One amendment to Rule 26 would require parties to specifically address e-discovery issues at the outset of litigation in Rule 26(f) conferences and submissions.  In addition, Rule 26(b)(2) would be amended to include the following language: “a party need not provide discovery of electronically stored information that the party identifies as not reasonably accessible.   On motion by the requesting party, the responding party must show that the information is not reasonably accessible.   If that showing is made, the court may order discovery of the information for good cause and may specify terms and conditions for such discovery.”

This proposed amendment to Rule 26(b)(2) comports in large part with the prevailing balancing test for cost-shifting in electronic discovery authored by Judge Shira A. Scheindlin in the first of her several landmark electronic discovery decisions in Zubulake v. UBS Warburg LLC, 217 F.R.D. 309, 2003 U.S. Dist. LEXIS 7939 (S.D.N.Y. 2003) (“Zubulake I”).  During discovery in an employment discrimination case, the plaintiff asked for the production of "[a]ll documents concerning any communication by or between UBS employees concerning Plaintiff."   When UBS produced only about 100 pages of e-mails, Zubulake argued that there were responsive e-mails located on UBS' back-up tapes.  UBS objected and argued that producing evidence by restoring and reviewing those tapes would cost it some $300,000.  

Judge Scheindlin , in determining who would be responsible for the cost of production, laid out seven factors that the court would consider to determine whether it would be appropriate to shift the cost of producing the emails from UBS to Zubulake. The seven factors are:

  1. The extent to which the request is specifically tailored to discover relevant information;
  2. The availability of such information from other sources;
  3. The total cost of production, compared to the amount in controversy;
  4. The total cost of production, compared to the resources available to each party;
  5. The relative ability of each party to control costs and its incentive to do so;
  6. The importance of the issues at stake in the litigation; and
  7. The relative benefits to the parties of obtaining the information.

Under Judge Scheindlin ’s test, cost-shifting will only be considered when production of electronic information is unduly burdensome or unduly expensive, which "turns primarily on whether the information is kept in an accessible or inaccessible format."  The five categories of storage media the court described, from most accessible to least accessible, are: (1) active, online data; (2) near-line data; (3) offline storage/archives; (4) backup tapes; and (5) erased, fragmented or damaged data.  The court concluded that data stored in the first three categories is "accessible" because such data is in a "readily useable format" and "does not need to be restored or otherwise manipulated to be usable."   Data stored on the last two storage media is "inaccessible" because backup tapes must be restored, fragmented data must be de-fragmented, and erased data must be reconstructed, all before the data is usable.   Therefore, according to the Zubulake I court, "it would be wholly inappropriate to even consider cost-shifting" for "accessible" information, but it would be appropriate to consider cost-shifting for "inaccessible" information.

Compared to previous tests, the Zubulake I test tends to favor requesting parties by limiting the instances of cost shifting to them.  (Cf., Rowe Entertainment, Inc. v. The William Morris Agency, Inc., 205 F.R.D. 421 (S.D.N.Y. 2002).)  On this issue, the Sedona Group has departed from Zubulake I and the Rules Advisory Committee.  They recommend that in most instances, “the reasonable costs of retrieving and reviewing electronic information should be borne by the responding party, unless the information sought is not reasonably available to the responding party in the ordinary course of business.”  (Emphasis added.)  This “availability in the ordinary course of business” standard may yield the same conclusion that the Zubulake I test would in many cases, but it is possible that information on a particular storage media would be considered "accessible" by the Zubulake I court, but not reasonably available in the ordinary course of business.  In addition, the Sedona approach provides cost-shifting for the costs of "retrieving and reviewing" electronic information, whereas the Zubulake I approach only shifts the cost of retrieving and searching the information.  In these ways, the Sedona approach favors producing parties.

It is important to follow these changes to the guidelines and rules governing the production of electronic data and the costs associated with electronic discovery.  Consider Murphy Oil USA, Inc. v. Fluor Daniel, Inc., 2002 WL 246439, 52 Fed.R.Serv.3d 168 (E.D. La. 2002) in which the plaintiff sought production of email from 93 backup tapes.   The defendant’s expert estimated that the cost of review and production would be over $6.2 million and that it would take over six months to retrieve the material alone, not including the time required to review the material for responsiveness and privilege.   The court in that case, applying the Rowe test, held that the cost of production would shift to the requesting plaintiff. 

Businesses will only become more wired and technologically based.  And while it is true that discovery disputes are decided on a case-by-case basis, the test that the court applies to the determination of whether discovery costs shift can be outcome-determinative of the entire litigation.  Therefore, the cost-shifting test that is ultimately adopted by the courts and the amendments to the Federal Rules that are ultimately adopted will be of great significance to the cost of litigation in future e-discovery matters. 

II.         Document Retention / Destruction Policies in the Context of Legal Holds

It is clear that when litigation commences, the rules of civil procedure apply to documents and information stored and transmitted electronically.  As such, businesses are required to adopt electronic document and information retention policies to preserve this information in the event litigation arises necessitating production of this evidence.  The Sedona Conference Working Group Series has published guidelines (“Sedona Guidelines”) that businesses can use when creating and implementing electronic document and information retention policies. 

The Sedona Guidelines make clear that a business does not need to retain all electronic documents and information ever created or generated.  To do so would place a ridiculous burden on the business.  In addition, when a business is required to produce electronic documents and information in response to discovery requests it would be a waste of time and money to sift through every electronic document created or generated in order to produce those responsive to the specific discovery requests.  A business may adopt a policy that allows for the reasonable and systematic destruction of electronic documents and information.  The Sedona Guidelines Public Comment Draft 2004, Comment 3.c.  But, when a business has notice of the reasonable anticipation of litigation, it must implement a legal hold such that documents and information related to the legal issues involved in the anticipated litigation are not destroyed.  Thus, electronic documents and information only needs to be retained so long as they have value as defined by the business need or legal requirement.  The Sedona Guidelines Public Comment Draft 2004, Comment 3.a.

When a business is placed on reasonable or actual notice of the anticipation of litigation, its legal hold policy should be immediately initiated.  This does not mean that the reasonable destruction of documents that are not reasonably related to the legal issues involved in the litigation cannot continue in accordance with the existing policy.  Further, the proper destruction of electronic records or other information consistent with a reasonable approach to managing information and records is not synonymous with spoliation of evidence or obstruction of justice.  The Sedona Guidelines Public Comment Draft 2004, Comment 3.b.  A business should be permitted to continue its reasonable and systematic destruction of electronic documents and information assuming reasonable steps have been taken to preserve the documents and information relevant to the anticipated litigation.  Id. ; citing Martin C. Redish , Electronic Discovery and Litigation Matrix, 51 DUKE L. J. 561, 621 (2001).  The obligations and benefits in implementing a policy for the destruction of electronic documents and information also applies to the destruction of hardware and media, residual, shadowed or deleted data, and metadata.  See The Sedona Guidelines Public Comment Draft 2004, Comment 3.e, d and f.

Allowing a business to continue to implement its electronic document and information destruction policy will benefit the business and the opposing party during the anticipated litigation.  First, destroying unrelated documents will allow the business to more efficiently produce responses to discovery requests by limiting the volume of documents and information that must be reviewed to produce the responses.  Second, reducing the volume of electronic documents and information will decrease the personnel time and litigation costs associated with producing responses.  Finally, reducing the volume of electronic documents and information will reduce the time necessary to complete the discovery process and resolution to the litigation.          

When adopting its electronic document and information destruction policy, the business must understand the need to suspend the policy when the business has actual or reasonable notice of the anticipation of litigation in order to avoid the destruction of documents and information relevant to the litigation.  Therefore, the policy must include a set of procedures implementing a legal hold upon such notice.

In order to effectively implement a legal hold policy, the Sedona Guidelines suggest that a business’ legal department create a checklist of circumstances that trigger duty to preserve certain electronic documents and information has been triggered.  The Sedona Guidelines Public Comment Draft 2004, Comment 5.b.  In order to ensure good faith retention of the relevant electronic documents and information, the policy should include steps to take and identify who is going to take those steps once the duty to preserve has been triggered.  To accomplish this, the policy should identify specific persons responsible for different aspects of the legal hold, including: 1) who has the authority to impose a legal hold, 2) who is responsible for communicating the legal hold requirements, 3) who is responsible for implementation of the legal hold, and 4) who has the authority to determine that the need for a legal hold no longer exists.  The Sedona Guidelines Public Comment Draft 2004, Comment 5.c.  These employees may include personnel from multiple departments such as persons responsible for overseeing the destruction policy, persons from the legal department, persons from the IT department, senior managers or directors relevant to the specific litigation, and sufficient staff to facilitate the execution of the policy.  The Sedona Guidelines Public Comment Draft 2004, Comment 5.d.

When implementing the legal hold, the business should tailor the hold in accordance with the legal requirements of the litigation.  The business must exert a reasonable effort to identify and manage the relevant evidence readily available to the business.  The Sedona Guidelines Public Comment Draft 2004, Comment 5.e.  To do this, the business should issue a legal hold notice throughout the business that specifically states the relevant electronic documents and information to be preserved.  Id.  

The notice does not need to be distributed business wide; rather, it only needs to be communicated to the custodians of relevant electronic documents and information and individuals who may have other relevant information.  The Sedona Guidelines Public Comment Draft 2004, Comment 5.f.  The notice should be issued by a senior representative of the legal department or other department responsible for electronic document and information preservation and destruction.  Id.   The notice does not need to be a detailed catalog of every electronic document or information to be preserved, but it should provide a sufficient description of the subject matter to the custodians so they can identify, segregate and preserve the identified electronic documents and information.  Id.   The notice should be distributed in a manner designed to ensure that it reaches the relevant employees.  Id.   The business should also consider whether the litigation warrants sending the legal hold notice to any third parties to ensure reasonable preservation of electronic documents and information in the third party’s possession and whether to update the notice as the litigation proceeds.  Id.  

When implementing any legal hold, the business should document the steps it has taken to accomplish this.  By doing so, the business will be in a better position to address any challenges to the business’ preservation policy through a legal hold.  In fact, the business may want to have its employees certify compliance with the legal hold policy.  Following these steps will allow any business to defend against challenges to its electronic document and information destruction policy, even when an individual employee acts outside the scope of his/her employment and destroys relevant electronic documents or information.  The Sedona Guidelines Public Comment Draft 2004, Comment 5.h. 

Once the reason causing the implementation of the legal hold ceases to exist, the business can terminate the legal hold and recommence its electronic document and information destruction policy.  The Sedona Guidelines Public Comment Draft 2004, Comment 5.g.  But, when the business terminates the legal hold, it should consider whether it has an obligation to maintain the documents or information subject to the legal hold, whether the documents and information may be subject to another legal hold, and whether the documents and information can be disposed of as soon as the legal hold lifts or must wait until the next scheduled destruction process pursuant to the business’ policy.  The Sedona Guidelines Public Comment Draft 2004, Comment 5.j. 


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