New Court Rule Ups the Ante Even Further, Making It Crucial to Manage eDiscovery at the Enterprise Level

Understanding E-Discovery Risk

Whether information exists in a hard copy format or is electronically stored, it is subject to discovery in litigation. When responding to discovery requests, the ability to locate and retrieve information becomes critical. At the same time, advances in technology have substantially increased the volume of Electronically Stored Information (ESI) and have affected how this information is created, preserved and stored. Despite the technical challenges of format, condition, and the manner or location in which the information is stored, ESI contains unique characteristics that provide valuable evidence beyond the actual file contents, such as who knew what when (e.g., the names of contributors and the dates of creation, modification and most recent viewing).

The volume of ESI subject to legal discovery continues to grow, as do the stakes for organizations. A new and major force with regard to e-discovery is legislation amending the Federal Rules of Civil Procedure (FRCP), which became effective on December 1, 2006. The amended rules establish guidelines for e-discovery in civil suits brought in federal district courts, while state courts, too, increasingly adopt the federal rules in whole or in part as they seek solutions to difficulties posed by ESI.

The effects of the amended FRCP on how an organization manages its ESI could be more far-reaching than other recent governmental regulations, such as the Sarbanes-Oxley Act and the Health Insurance Portability and Accountability Act (HIPAA). Why? For one thing, FRCP impacts virtually every organization, not just public companies or those in a specific industry, like healthcare.

As the Association for Information and Image Management (AIIM) points out, many non-public companies that initially dismissed the records and information management requirements associated with Sarbanes-Oxley as not relevant to their companies will no longer be able to take this stance with the new e-discovery rules. With this legislation, all corporations doing business in the United States should consider an effective and responsible electronic information management infrastructure to be a necessity rather than an option.

The amended FRCP regarding e-discovery dramatically changes the playing field. Previously, companies often approached discovery on an ad hoc basis, pleading ignorance as to the loss of discoverable information.

They are now bound by the new rules to preserve any ESI that may be considered relevant evidence in a potential lawsuit. If they fail to produce a requested document, they may face consequences ranging from monetary sanctions to charges of obstruction of justice.

The new FRCP requirements create two categories of information. “Reasonably accessible information” refers to any data a company routinely accesses or uses. ESI considered not reasonably accessible includes information that would require significant cost, effort or burden to produce (e.g., certain backup tapes or deleted data). Sources of information withheld from a discovery request on this basis must be identified, and the fact that the data is not reasonably accessible must be demonstrated. If a court finds that the parties have inaccurately classified this data as not reasonably accessible or if the opposing party agrees to pay for the costs of retrieval, this information still could be subject to discovery, regardless of the significance of the undertaking.

Although the new legislation creates a “safe harbor” rule that allows companies that destroy information in a “routine, good faith operation of an electronic information system” to avoid court sanctions, this safe harbor does not necessarily protect a company from every type of data loss or destruction.

Whether a company’s data management and retention policy is reasonable or in good faith is subject to challenge. More significantly, the safe harbor does not relieve any party of the burden of preserving ESI and related evidence when a legal dispute is likely. This means that a company must include the ability to quickly institute a “litigation hold” as part of any “routine” data management and retention system. If the court determines that a company failed to preserve relevant data, or worse, deliberately destroyed evidence regarding a legal dispute, it could impose monetary penalties. The court could also hold that the missing data supports the opposition, seriously compromising the company’s legal position.