ESI Preparedness

The era of hanging file folders and loose-leaf paper crammed into bulging metal file cabinets is a distant memory. In this digital age, customer records, financial paperwork, and research and development memoranda live on hard drives, servers and back-up tapes, not in bankers' boxes or file cabinets. In response to increasing volumes of electronic data generated and maintained, corporations are forming response teams to develop and implement protocol designed to comply with legal requirements for the preservation and production of electronically stored information (ESI).

This new era of corporate document management has been shaped by amendments to the Federal Rules of Civil Procedure (“FRCP”) and fueled by a sharp decline in corporate wealth and the corresponding uptick in corporate civil case filings. In December 2006, Rules 16, 26, 34 and 37 were amended to accommodate changes in the way information is managed in the context of litigation. Contemporaneously, the market experienced an increase in interest rates, slowing of real estate appreciation, and the economy was caught in the throws of a perfect storm created by the generous economic boom of the preceding decade. As corporate litigation increases in a down economy, businesses have felt the pressure more than ever to take inventory of teir ESI and prepare for the day their ESI management practices are called into question. Concurrently, the amended rules, along with ensuing case-law, have provided sorely needed instruction and guidance to corporations and their counsel regarding ESI discovery in civil lawsuits.

Recent Study

Not surprisingly, a recent study reveals that an ever-increasing number of corporations are, in fact, creating and implementing policies and procedures to properly manage ESI. The courts have concurrently become progressively sophisticated about the legal and technical issues involved in ESI discovery and are holding attorneys and their corporate clients to stricter compliance standards. These factors have led to the convergence of legal and IT professionals in ways no one could have envisioned even five years ago.

Recent interviews of 403 in-house counsel conducted by Minneapolis-based Kroll Ontrack and published in its 2008 ESI Trends Report, reveals that 70% of U.S. companies have document retention policies in place, up from 30% just one year prior. This finding heralds a change in how businesses assign responsibility for ESI preservation, destruction and maintenance, which evinces both an increased awareness and escalated level of preparedness in this new era of e-discovery. Similarly, case-law from the past two years demonstrates the judiciary's decreasing tolerance for corporations and corporate counsel who assert ignorance as a defense to instances of ESI mismanagement.

Key Decisions

For example, a 2006 decision from the Southern District of New York, Phoenix Four, Inc. v. Strategic Res. Corp., 2006 WL 1409413 (SDNY May 23, 2006), imposed substantial sanctions against a corporate defendant and its counsel for spoliation and late production of evidence. In another ground-breaking case from the past year, Qualcomm v. Broadcomm, 2008 U.S. Dist. Lexis 911 (S.D. Calif. 2008), the court cited the “impressive education and extensive experience” of Qualcomm's attorneys to justify significant sanctions for failure to produce relevant e-mails. Most recently, in August 2008, the Northern District of California held in Keithley v. Home Store.com, Inc., 2008 U.S. Dist. LEXIS 61741 (Aug. 12, 2008), that Home Store's failure to issue a written document retention policy well after its duty to preserve arose was among the “most egregious” discovery misconduct the court had ever seen.

Entrusting IT Professionals

The Keithley court criticized the defendant for not involving IT in the preservation of electronic evidence that was crucial to the underlying suit. Interestingly, the 2008 ESI Trends Report reveals that an increasing number of organizations are, in fact, entrusting IT professionals ' who have no legal training ' with increased responsibility for developing and enforcing ESI strategies and policies. IT departments, not legal departments, are taking primary responsibility for ESI policy creation in 35% of companies (up from 18% in 2007). This finding is not surprising when considering that IT is the driving force behind the transition from bankers' boxes and file cabinets to ESI. In other words, IT's technical expertise is integral to the shift from hard-copy paperwork to archived .pst files.

The recognition of IT's importance marks a shift toward what must become a more collaborative and team-oriented approach to e-discovery. Corporate counsel is recognizing the need to partner with IT and draw from each other's expertise in order to prepare for the day that the Summons and Complaint lands on the reception desk. In other words, few in-house attorneys understand fully the technical intricacies of IT, and few IT professionals understand the complexity of procedural and discovery rules in the context of litigation. Further, the risk of litigation and the corresponding cost of electronic discovery do not diminish in a downward economy; rather, the opposite is true. In hard economic times, litigation increases as businesses and government agents restructure and realign. Case law also illustrates it is far more expensive to fail to take action than to take action. As the imposition of costly sanctions in Keithley demonstrates, ignorance is not a legitimate excuse for e-discovery transgressions. Cooperation and communication are essential elements of the relationship, which must exist between IT and legal in order for a corporate ESI policy to be a success.

First Step

This raises the question: What is the first step in encouraging the cross-share of knowledge between IT and legal? How should a corporation encourage synergy between these two seemingly disparate disciplines? With litigation and the amount of electronic discovery on the rise (85% of civil cases now involve the exchange of electronic data) in a time of increasing budgetary pressure, in-house counsel must drive the legal aspects of litigation preparedness, work with IT to avail themselves of the necessary technical knowledge, and marshal internal and external assistance (if needed) to prepare for the day litigation strikes or an investigation ensues.

The sooner corporate IT and legal team the better; as stated in the 2008 ESI Trends Report, corporations cite lack of time and resources as the primary barrier to the execution of effective ESI policies. This finding is concerning when coupled with the revelation that the biggest challenge for corporations over the next five years is predicted to be unmanageable volumes of ESI. In fact, one in four corporate counsels predicts that managing increasing volumes of data will be a major challenge in the next five years. As the world becomes increasingly mobile, relevant and potentially discoverable data is collected from text messages, voicemail, blogs, instant messages, GPS and other emerging tracking devices. If today's corporations lack resources, how will they manage the increase in ESI in the upcoming years?

Conclusion

Cases such as Phoenix Four, Qualcomm and Home Store.com should serve to remind corporate counsel that improper handling of ESI can lead to serious consequences. It is next to impossible to predict the market climate in upcoming months and years. However, corporations should diligently strive to take proactive measures intended to guard against loss stemming from the mismanagement of ESI. Drafting, promoting and enforcing a litigation readiness policy, in addition to getting one's arms around the location of a company's electronic documents and the law that pertains to the discoverability of these documents is an increasingly important element of corporate risk management. Corporate counsel and IT professionals must work together to ensure proper litigation preparedness measures are in place'before the process server steps off of the elevator.

To see the complete findings of Kroll Ontrack's 2008 ESI Trends Report, visit: www.krollontrack.com/library/esitrends_krollontrack2008.pdf

Regina A. Jytyla is a Managing Staff Attorney at Kroll Ontrack. She tracks and reports on the evolving law and technology in the areas of litigation readiness and management of ESI, electronic discovery, and computer forensics.

The era of hanging file folders and loose-leaf paper crammed into bulging metal file cabinets is a distant memory. In this digital age, customer records, financial paperwork, and research and development memoranda live on hard drives, servers and back-up tapes, not in bankers' boxes or file cabinets. In response to increasing volumes of electronic data generated and maintained, corporations are forming response teams to develop and implement protocol designed to comply with legal requirements for the preservation and production of electronically stored information (ESI).

This new era of corporate document management has been shaped by amendments to the Federal Rules of Civil Procedure (“FRCP”) and fueled by a sharp decline in corporate wealth and the corresponding uptick in corporate civil case filings. In December 2006, Rules 16, 26, 34 and 37 were amended to accommodate changes in the way information is managed in the context of litigation. Contemporaneously, the market experienced an increase in interest rates, slowing of real estate appreciation, and the economy was caught in the throws of a perfect storm created by the generous economic boom of the preceding decade. As corporate litigation increases in a down economy, businesses have felt the pressure more than ever to take inventory of teir ESI and prepare for the day their ESI management practices are called into question. Concurrently, the amended rules, along with ensuing case-law, have provided sorely needed instruction and guidance to corporations and their counsel regarding ESI discovery in civil lawsuits.

Recent Study

Not surprisingly, a recent study reveals that an ever-increasing number of corporations are, in fact, creating and implementing policies and procedures to properly manage ESI. The courts have concurrently become progressively sophisticated about the legal and technical issues involved in ESI discovery and are holding attorneys and their corporate clients to stricter compliance standards. These factors have led to the convergence of legal and IT professionals in ways no one could have envisioned even five years ago.

Recent interviews of 403 in-house counsel conducted by Minneapolis-based Kroll Ontrack and published in its 2008 ESI Trends Report, reveals that 70% of U.S. companies have document retention policies in place, up from 30% just one year prior. This finding heralds a change in how businesses assign responsibility for ESI preservation, destruction and maintenance, which evinces both an increased awareness and escalated level of preparedness in this new era of e-discovery. Similarly, case-law from the past two years demonstrates the judiciary's decreasing tolerance for corporations and corporate counsel who assert ignorance as a defense to instances of ESI mismanagement.

Key Decisions

For example, a 2006 decision from the Southern District of New York, Phoenix Four, Inc. v. Strategic Res. Corp., 2006 WL 1409413 (SDNY May 23, 2006), imposed substantial sanctions against a corporate defendant and its counsel for spoliation and late production of evidence. In another ground-breaking case from the past year, Qualcomm v. Broadcomm, 2008 U.S. Dist. Lexis 911 (S.D. Calif. 2008), the court cited the “impressive education and extensive experience” of Qualcomm's attorneys to justify significant sanctions for failure to produce relevant e-mails. Most recently, in August 2008, the Northern District of California held in Keithley v. Home Store.com, Inc., 2008 U.S. Dist. LEXIS 61741 (Aug. 12, 2008), that Home Store's failure to issue a written document retention policy well after its duty to preserve arose was among the “most egregious” discovery misconduct the court had ever seen.

Entrusting IT Professionals

The Keithley court criticized the defendant for not involving IT in the preservation of electronic evidence that was crucial to the underlying suit. Interestingly, the 2008 ESI Trends Report reveals that an increasing number of organizations are, in fact, entrusting IT professionals ' who have no legal training ' with increased responsibility for developing and enforcing ESI strategies and policies. IT departments, not legal departments, are taking primary responsibility for ESI policy creation in 35% of companies (up from 18% in 2007). This finding is not surprising when considering that IT is the driving force behind the transition from bankers' boxes and file cabinets to ESI. In other words, IT's technical expertise is integral to the shift from hard-copy paperwork to archived .pst files.

The recognition of IT's importance marks a shift toward what must become a more collaborative and team-oriented approach to e-discovery. Corporate counsel is recognizing the need to partner with IT and draw from each other's expertise in order to prepare for the day that the Summons and Complaint lands on the reception desk. In other words, few in-house attorneys understand fully the technical intricacies of IT, and few IT professionals understand the complexity of procedural and discovery rules in the context of litigation. Further, the risk of litigation and the corresponding cost of electronic discovery do not diminish in a downward economy; rather, the opposite is true. In hard economic times, litigation increases as businesses and government agents restructure and realign. Case law also illustrates it is far more expensive to fail to take action than to take action. As the imposition of costly sanctions in Keithley demonstrates, ignorance is not a legitimate excuse for e-discovery transgressions. Cooperation and communication are essential elements of the relationship, which must exist between IT and legal in order for a corporate ESI policy to be a success.

First Step

This raises the question: What is the first step in encouraging the cross-share of knowledge between IT and legal? How should a corporation encourage synergy between these two seemingly disparate disciplines? With litigation and the amount of electronic discovery on the rise (85% of civil cases now involve the exchange of electronic data) in a time of increasing budgetary pressure, in-house counsel must drive the legal aspects of litigation preparedness, work with IT to avail themselves of the necessary technical knowledge, and marshal internal and external assistance (if needed) to prepare for the day litigation strikes or an investigation ensues.

The sooner corporate IT and legal team the better; as stated in the 2008 ESI Trends Report, corporations cite lack of time and resources as the primary barrier to the execution of effective ESI policies. This finding is concerning when coupled with the revelation that the biggest challenge for corporations over the next five years is predicted to be unmanageable volumes of ESI. In fact, one in four corporate counsels predicts that managing increasing volumes of data will be a major challenge in the next five years. As the world becomes increasingly mobile, relevant and potentially discoverable data is collected from text messages, voicemail, blogs, instant messages, GPS and other emerging tracking devices. If today's corporations lack resources, how will they manage the increase in ESI in the upcoming years?

Conclusion

Cases such as Phoenix Four, Qualcomm and Home Store.com should serve to remind corporate counsel that improper handling of ESI can lead to serious consequences. It is next to impossible to predict the market climate in upcoming months and years. However, corporations should diligently strive to take proactive measures intended to guard against loss stemming from the mismanagement of ESI. Drafting, promoting and enforcing a litigation readiness policy, in addition to getting one's arms around the location of a company's electronic documents and the law that pertains to the discoverability of these documents is an increasingly important element of corporate risk management. Corporate counsel and IT professionals must work together to ensure proper litigation preparedness measures are in place'before the process server steps off of the elevator.

To see the complete findings of Kroll Ontrack's 2008 ESI Trends Report, visit: www.krollontrack.com/library/esitrends_krollontrack2008.pdf

Regina A. Jytyla is a Managing Staff Attorney at Kroll Ontrack. She tracks and reports on the evolving law and technology in the areas of litigation readiness and management of ESI, electronic discovery, and computer forensics.