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Archive for the ‘Preservation’ Category

Special thanks to Yoav Griver and Siddartha Rao for their contributions to this series.

ESI and technology issues relating to data storage and retrieval are often critical to litigation; there are many examples of high-stakes litigation that has turned on issues involving data management and e-discovery. See, e.g., United States v. Microsoft, 253 F.3d 34, 71–74 (D.C. Cir. 2001).  New legal frameworks have been created to deal with the reality of electronic data in litigation, and parties considering M&A deals should be aware of the potential litigation issues involving a merging counterparty or target company’s ESI and data management systems.

Data Storage and Potential Litigation Issues

Counsel must perform data due diligence that includes identification of existing legacy systems and the data stored within them.  Failure to do so may create integration issues, as well as data loss and data recovery issues that will create substantial costs and dangers in the event of future litigation.

For example, the ability to present data in multiple forms can raise the cost of discovery because courts can order litigants to convert discovery data into new formats.  This makes it all the more important that parties to M&A transactions conduct data due diligence to discover the location and formats of ESI in legacy data systems of M&A counterparties.  In the 1980 case of National Union Electric Corp. v. Matsushita Electric Industrial Co., 494 F. Supp. 1257 (E.D. Pa. 1980),  the defendants requested National Union to provide a “computer readable tape” copy of documents already produced in paper form. See National Union, 494 F. Supp. at 1258.   National Union resisted the motion on the grounds that under discovery rules National Union had an obligation to produce already existing documents, but had no such obligation to manufacture data in a new format. Id. at 1259.  The court acknowledged the distinction, but ultimately rejected the argument as inconsistent with the realities of data use and storage:

We now live in an era when much of the data our society desires to retain is stored in computer discs.  This process will escalate in years to come. We suspect that by the year 2000,  virtually all data will be stored in some form of computer memory.  To interpret the Federal Rules which, after all, are to be construed to “secure the just, speedy, and inexpensive determination of every action,” in a manner which would preclude the production of material such as is requested here, would eventually defeat their purpose. Id. at 1261–63

At the time of this opinion, the court could confidently state that it found “no case in which the court has ordered the programming of a computer to manufacture a computer tape not theretofore in physical existence.” Id. at 1261.  In contrast, today, “[t]he law is clear that data in computerized form is discoverable even if paper ‘hard copies’ of the information have been produced, and . . . the producing party can be required to design a computer program to extract the data from its computerized business records, subject to the Court’s discretion as to the allocation of the costs of designing such a computer program.” See Anti-Monopoly, Inc. v. Hasbro, Inc., 1995 U.S. Dist. LEXIS 16355, 1 (S.D.N.Y. Nov. 3, 1995).

When ordering the preservation or production of ESI, courts are sensitive to the relevance of the ESI to the litigation, the value of the ESI to the requesting party, and the cost to the producing party—courts will not foist irrational discovery requirements and costs upon litigants. See, Wright v. AmSouth Bancorp, 320 F.3d 1198 (11th Cir. 2003).

Nonetheless, where it is the producing party’s own document retention scheme which escalates the costs of production, courts may order the producing party to bear these costs.  For example, in In re Brand Name Prescription Drugs Antitrust Litigation, Brand, 1995 U.S. Dist. LEXIS 8281, defendant CIBA-Geigy Corporation argued that the class plaintiffs’ motion to compel the production of inter-corporate emails was overly broad, burdensome, and expensive and that the class plaintiff should bear the estimated $50,000–$70,000 costs of culling through over 30 million stored email documents. Id. At 2-4.  The court rejected this argument, noting that at least four other defendant manufacturers had produced emails without requesting payment of costs and succinctly stating that ”Class plaintiffs should not be forced to bear a burden caused by CIBA’s choice of electronic storage.” Id. at 6–7

Not surprisingly, the course of events has vindicated the predictions of the National Union court, and requests to produce data in specific formats are no longer unusual. See L.H. v. Schwarzenegger, 2008 U.S. Dist. LEXIS 86829 (E.D.Cal. May 14, 2008).

However, without proper data due diligence that accounts for document retention or legacy data management systems, such routine requests can create large litigation costs.  To the extent such costs are avoidable with proper data due diligence, the failure to conduct data due diligence on a counterparty’s legacy systems or ESI is tantamount to ignoring a potentially large liability when valuing a merging counterparty or target company.

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In March of this year, a court noted that a corporation’s failure to adopt appropriation information polices can results in potentially costly legal sanctions. While sanctions themselves may or may not be substantial, the legal fees leading up to the sanctions will likely to be weighty. See, Phillip M. Adams & Assoc. L.L.C. v. Dell, Inc., 2009 U.S. Dist. LEXIS 26964 (N.D. Utah. Mar. 27, 2009). This decision and other recent holdings serve notice that it is in technologist’s best interest to bring potentially sub-standard retention policies or irresponsible data retention practices that may result in loss of data to the attention of their legal and business archiving/eDiscovery counterparts. The courts, by holding corporations responsible, are certainly acting within the dictates of logic. A corporation deploying a solution that seamlessly allows for additional search, preservation, or production burdens without imposing additional burdens individual employees may be in a stronger position to assert that they fall within the ambit of safe harbor.

Technologists who knowingly withhold such information from their legal and business counterparts, place their employers and their employment at risk. While many grey areas exist as to what constitutes a failure of policies/practices to synchronize with systems, there seems to be clarity on one thing: when policies and practices are in-place, but the systems fail to retain data, a potentially sizable legal problem may arise for the entity.

Technologists are not policy or legal experts, but it is arguably within their domain of expertise to inform the legal and business creators of these policies about the technological feasibility. Moreover, it is evident that a company’s position around discovery is a great deal stronger when a particular employee is responsible for the execution of the preservation, search, and production of information. However, the reality is that placing additional burdens on already overworked employees is a fiction and the information is not likely to be preserved. In addition, companies that elect to place the burden for implementing data retention or preservation orders on their employees–effectively placing the operational execution of preservation, search and production at the mercy of an individual employee’s practice–are making a potentially bad decision.

The extent of personal liability for an individual responsible for ensuring that the corporation policies, practice, and systems operate to some standard is still yet to be established. Irrespective of the legal finding, it can potentially impact your attractiveness to an employer.

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Many people pontificate on keywords and search technologies and the need to grasp the fundamentals of how they operate. Others discuss cost savings or the destructive effect eDiscovery is having on corporate America. All of these present valid and key concepts to be discussed, but underlying all of them exists a larger issue: Communication. Most problems that arise from the electronic discovery abyss derive from poor communication.

To ensure that preservation is executed within an organization, it is imperative that key legal and litigation support stakeholders communicate with internal technology teams. This is especially true when it comes to the initial deployment of preservation-driven technology. Once installed, technology teams need to both train and communicate with the litigation support individuals so they know how to execute a preservation hold.

In the preservation arena, an effective solution will empower lawyers to be self-sufficient–without having to rely on technologists each and every time they seek to execute a court order preservation hold. Due to recession, most companies simply do not have sufficient assets to build their own in-house solution. However, the companies that do successfully empower the lawyers can realize substantial cost savings. The potential savings of empowering lawyers, by providing the correct technology tools for them to execute legal hold, saves companies people-hours, service fees as well as eliminating error.

The elimination of human communication errors may represent the largest savings. A slew of case law suggests that the execution of preservation is critical. For example:

Anadarko Petroleum Corp. v. Davis, 2006 U.S. Dist. LEXIS 93594 (S.D. Tex. Dec. 28, 2006); http://www.ca10.uscourts.gov/conference/downloads/ediscovery7.pdf

Best Buy Stores, L.P. v. Developers Diversified Realty Corp., 247 F.R.D. 567 (D.Minn. 2007); http://www.ca10.uscourts.gov/conference/downloads/ediscovery7.pdf

In re Intel Corp. Microprocessor Antitrust Litig., 2008 WL 2310288 (D. Del. June 4, 2008) http://www.ca10.uscourts.gov/conference/downloads/ediscovery7.pdf

Johnson v. Big Lots Stores, Inc., 2008 WL 2191357 (E.D. La. May 7, 2008) http://www.ca10.uscourts.gov/conference/downloads/ediscovery7.pdf

While these cases vary, in terms of outcome, regarding whether or not litigants execute preservation orders to the extent set-forth by the courts. The collective outcomes demonstrate the importance of being able to execute a defensible preservation order.

While the manual and laborious process of preservation sounds like a great way for one to spend weekends. It still leaves a company open to sizable human risk error. It might make sense for companies to consider empowering the lawyers to execute preservation holds. In other words, let the lawyers be lawyers and let the technologists be technologists.

In my experience, most preservation issues can be avoided if enterprise systems are configured so that lawyers can seamlessly implement a preservation hold and not have to use the technology 911 pager to effectuate a preservation order.

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