by Michael J. Bauer, Associate

Imagine you are a corporation being sued for half-a-billion dollars.  As part of the discovery process, you are required to review vast quantities of back-up tapes of electronically stored information to see whether they contain anything relevant to the litigation.  You fail to comply with the relevant discovery rules.  As a result, the judge enters a sanctions order dismissing your corporation’s attorney.  He also instructs the jury that the jury may consider the plaintiff’s complaint against your corporation as true for all purposes; and your corporation’s failure to comply with the discovery rules as substantive evidence of an effort to conceal offensive conduct.  Thereafter, the jury returns a $1.4 billion verdict against your corporation, of which $800 million are punitive damages for failing to comply with the discovery rules.

Sound farfetched? It is not.  The facts are real; from an actual case involving a large investment bank.  The case dramatically illustrates why an understanding of the new e-discovery amendments to the Federal Rules of Civil Procedure is vitally important.

As of December 1, 2006, the Federal Rules of Civil Procedure were amended and supplemented to consolidate and conform previous case-by-case rulings on the discovery of electronic documents into a uniform procedure for civil lawsuits in U.S. District Courts.  The amendments to Rule 26 form the backbone of the new e-discovery procedures.  Rule 26(a)(1)(B) requires parties, without waiting for a discovery request, to provide a description by category and location of all electronically stored information the disclosing party may use to support its claims or defenses.  The Committee Notes to Rule 26 indicate that “electronically stored information” should have a broad meaning.  Such data may be stored on an individual employee’s hard drive, on a company’s central server, or it may have been archived to a backup recovery system.  Imagine the difficulties you could face in accessing and reviewing the volume and breadth of your electronic documents and data.  The new amendments include a limit to this burden of producing electronic documents, though the cap on this burden is, nonetheless, still high.

Under Rule 26(b)(2)(B), a party need not provide discovery of electronically stored information from sources the party identifies as not reasonably accessible because of undue burden or cost.  If a motion to compel discovery is made, however, or a protective order sought, the producing party has the burden of showing that the information is not reasonably accessible.  Even if the producing party makes this showing, a court may still order discovery if the requesting party shows good cause, and production does not violate the limitations of Rule 26(b)(2)(C).  Under that latter provision, the court will determine whether: (1) alternative sources exist that contain the information; (2) the party seeking discovery has had ample opportunity to obtain the information; and (3) the benefits of the information outweigh the burden of producing the discovery material.

To ensure that discovery runs smoothly, amended Rule 26(f) states that the parties must develop a proposed discovery plan that indicates the parties’ views and proposals concerning any issues relating to disclosure or discovery of electronically stored information, including the form or forms in which it should be produced.  The discussions and decisions at this conference can have lasting consequences throughout the litigation.

Another subject of the amendments is the form of production.  Once upon a time, documents were produced in one format, paper.  Electronically stored information, however, can include e-mail, word processing documents, image files, sound files, and numerous other formats.  Therefore, the form of production becomes important.  Rule 34 has been amended to address this very issue.

Rule 34(a) allows a party to request production of, and permission to inspect, copy, test or sample any designated electronically stored information.  The rule also requires, if necessary, that the respondent translate the information into a reasonably usable form.  The addition of testing and sampling to the rule is not meant to create a routine right of direct access to a party’s electronic information system.  The Committee Notes to the amendments reveal, however, that such access might be justified in some circumstances.

Rule 34(b) provides that the production request may specify the form(s) in which the electronically stored information is to be produced.  The responding party may object to the forms requested.  It is then incumbent upon the responding party to state the forms it intends to use (this remains true even if no form is specified in the request).  Furthermore, under Rule 34(b)(ii), if the request does not specify the form of production for the electronically stored information, the responding party must produce the information in the forms in which it is ordinarily maintained or in a form or forms that are reasonably usable.  A word of caution: a responding party who fails to specify a form of production in its response runs the risk that the requesting party may show that the produced form is not reasonably usable.  The responding party may be required to reproduce some or all of that information in an additional form.

The Committee Notes to Rule 34 also specify that if the responding party ordinarily maintains the information being provided in a way that makes it searchable by electronic means, the information should not be produced in a form that removes or significantly degrades this feature.

What happens, however, when electronically stored information can only be accessed through means no longer used by the responding party? This “legacy” data issue is arguably covered under Rule 26(b)(2)(B); that is, not reasonably accessible because of undue burden or cost.  The courts will address this issue on a case-by-case basis.

Rule 37(f) is new to the Federal Rules and states that absent exceptional circumstances, a court may not impose sanctions under the Rules on a party for failing to provide electronically stored information lost as a result of the routine, goodfaith operation of an electronic information system.  Be forewarned, however, the good faith portion of this rule may require a party to modify or suspend certain features of a routine operation to prevent the loss of information subject to a preservation obligation.  This obligation may arise by statute, common law, or a court order.  When the duty to preserve electronically stored information arises due to pending or reasonably anticipated litigation, it is known as a “litigation hold.”

While Rule 37(f) restricts the imposition of sanctions “under these rules,” courts may still order the responding party to produce an additional witness for deposition, answer additional interrogatories, or make similar attempts to provide alternatives for the lost information.  Moreover, the Committee Notes clarify that sanctions may still be imposed under other sources of authority or under rules of professional responsibility.  For example, failure to preserve electronic documents in anticipation of litigation may subject you to sanctions under the common law principles of spoliation of evidence.

Rule 45 has been amended to include electronically stored information requests within the scope of a subpoena.  The subpoena request is subject to the same caveats as a request on a party (i.e., production in ordinarily maintained or reasonably usable form, and need not produce if source is not reasonably accessible due to undue burden or cost).  Rule 45(a)(1)(B) has been amended to allow for testing and sampling of the subpoenaed party’s electronic information system, again subject to similar caveats as a party to the litigation.

Finally, Rule 33(d) has been amended to allow a responding party to substitute access to electronically stored information as an answer to an interrogatory, if the burden of deriving the information is substantially the same for either party.  The Committee Notes to this Rule state that the responding party must ensure that the requesting party can locate and identify the information as readily as the responding party.  This may require the responding party to give technical support or other assistance to aid in the discovery.

Now, after reading this article, you have an understanding of some of the technical aspects of the e-discovery amendments to the Federal Rules of Civil Procedure.  The real life scenario at the beginning of this article illustrates how failure to comply with the discovery rules for electronically stored information can be very costly.  The second part of this article, to appear in the Spring 2007 edition of the WTHF newsletter, will address steps that attorneys and clients can take to be in compliance with the ediscovery amendments to the Federal Rules of Civil Procedure.

The information or opinion provided in this article is the author's own and not necessarily that of Watt, Tieder, Hoffar & Fitzgerald, LLP. The author is solely responsible for the information and opinion that he or she has provided. The information contained herein does not replace seeking specific legal counsel to directly address individual client needs.
 
Watt, Tieder, Hoffar & Fitzgerald is one of the largest construction law firms in the world, with a practice that encompasses all aspects of construction contracting, claims and disputes resolution, and transactional legal services. WTHF principally represents large general contractors, design firms, and sureties throughout the country and internationally.