A Voyage of eDiscovery

Tom Knapp General Counsel, Asia Pacific 18 April 2007

Setting the eDiscovery Scene
Why are large, well respected US corporations paying so much in Court damages?

• Failure to disclose or provide electronic documents in a timely fashion/or at all • Inadvertent destruction of documents after ‘litigation hold’ should have applied • Spoliation of evidence due to failure to preserve emails and back up tapes
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Setting the eDiscovery Scene
• Management of electronically stored and transferred information is the hot topic for litigators

• A complex, costly and administrative challenge for corporations • Courts and lawmakers see the need to address the interface between technology and litigation
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Agenda
• The Central Role of the IT Department ! • What is Discovery? • What is eDiscovery and why it is different • Why it matters to you • Global trends in eDiscovery • Identifying some key issues and key ‘take-aways’ • What you might like to do

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Focus on Internal Systems of IT Depts

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What is Discovery?

• Parties to an impending civil court action seek to investigate and determine facts • Subject to application of privilege claims (eg. attorneyclient privilege) during pre-trial phase, each party can request documents and other evidence from parties and non-parties relevant to the lawsuit. Yes, even incriminating evidence. • Alternatively, a party can compel production of evidence by subpoena (“define the universe”)

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What is eDiscovery?

• The ‘discovery’ of information stored in electronic form. • Court-ordered or government investigations for the purpose of obtaining critical evidence • Sometimes used to refer to electronic tools that expedite the production of electronic documents

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In a Nutshell

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What is different about electronically stored information?

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What is different about electronically stored information?
eDiscovery
• Modern corporations encourage ‘decentralisation’ of information ownership • Stored in multiple locations and on many formats ….

“Weapons of Mass Discovery”

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What is different about electronically stored information?
Facts and Figures about electronic documents

• Volume of electronic documents continues to increase:
– due to falling costs of storage data – archiving rather than document destruction – easy and cheap to copy, creating exact duplicates – easy to distribute lengthy documents globally
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What is different about electronically stored information?
Building ‘Paper Towers’
. Paperwork (email and file server documents only) so far, from Australia’s biggest corporate insolvency

© 2007 McGrath Nicol (www.mcgrathnicol.com)

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Why Me?

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It’s About Information Management

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Global Trends
• Common law jurisdictions amending civil procedure rules to specifically address electronic documents
– England & Wales (October, 2005) – USA (December, 2006) – Victoria, Australia (February, 2007)

• If not managed correctly, cost of locating electronic documents:
– can exceed the damages sought by plaintiff or likely settlement costs – can act as a disincentive to defend claim

• Impact on your corporation depends on “state of readiness” to react and comply • Courts will have no sympathy if your corporation struggles to promptly find all relevant reasonably accessible information.
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Global Trends – Common law vs. Civil law jurisdictions
• Civil law jurisdictions (most EU countries): No pre-trial disclosure • Common law jurisdictions (UK, USA, Canada, Australia): Pre-trial disclosure / discovery is mandatory • Contrasting examples:

But discovery will apply to European companies or foreign operations where US or UK based litigation!

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Global Trends – Common law vs. Civil law jurisdictions
Comparative table: Discovery / Disclosure obligations in Europe and the United States
Disclosure obligations? Scope of disclosure obligations? Are electronic documents covered?
Yes

Sanctions for failure to comply?

Specific obligations for in-house counsel?

England and Wales

Yes, generally disclosure will be ordered in every action.

Must undertake a reasonable search to locate and disclose: • Documents on which you rely • Documents adverse to your case. • Documents that support another party’s case. Any such documents must be disclosed unless they attract legal privilege. Parties may obtain discovery of “any matter … relevant to a claim or defense of any party” unless such a document attracts legal privilege.

Sanctions may include: • Strike out. • Costs awards • Evidential prejudice. • Contempt of court.

Obligations to ensure relevant documents are preserved arise as soon as litigation is reasonably in prospect.

United States

Yes, generally discovery will be ordered in every action.

Yes

Sanctions may include: • Punitive damages. • Spoliation. • Adverse inferences. The court may: • Accompany an order for disclosure with a daily penalty for any delay in its production. • Draw adverse inferences from a refusal to produce documents. Failure to comply with an order for disclosure may result in the court drawing adverse inferences.

Document retention: duty to implement transparent records management and destruction policies. Document preservation: obligations to identify and ensure the continued retention of documents to meet discovery obligations. No express obligations but, generally, the courts expect companies to retain documents likely to become the subject of ligiation and may draw inferences from a failure to do so. As such it is advisablle that any document destruction policy is as transparent as possible.

France

No general disclosure obligations, although a court may order the disclosure of specific relevant documents at the request of a party.

Request must be sufficiently precise to allow the document to be identified and disclosure will not be ordered if the document is covered by professional secrecy or confidentiality.

Yes

Germany

No general disclosure obligations, although a court and at its discretion request documents, records, objects or files from the parties.

The court may order disclosure of a document referred to in one party’s pleadings and may order that a party disclose files insofar as they contain documents relevant to the proceedings. A party may not, however, request that the court make such an order and these powers are seldom used since they conflict with traditional German litigation principles. The requesting party must provide a copy of the requested document or give a full description of it. Disclosure will not be ordered in respect of a document received in the context of a lawyer’s professional relationship with his client. The requesting party must: • Identify the document precisely. •Show that it is in the other party’s possession. •Demonstrate its importance to the case. • Show that there is no serious prejudice in disclosing it.

Yes

No express obligations, although a failure to produce an ordered document due to its destruction may result in the court drawing adverse inferences.

Spain

No general disclousre obligations, although a court may order the disclosure of specific documents.

Yes

If a party refuses to produce an ordered document, the court may: • Draw adverse inferences. • Proceed against the party for contempt of court. Failure to comply with an order for disclosure may result in the court drawing adverse inferences.

None, although if a requested document has been destroyed, a court may accept the requesting party’s description of its contents as fact if reasonable to do so.

Italy

No general disclosure obligations, although a court may order the disclosure of specific documents.

Yes

None. In exceptional circumstances, a court may order an investigation of documents in a company’s possession. This is, however, very rare.

Extract from Cross-border Quarterly October – December 2006 © 2006 Legal & Commercial Publishing Limited

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Global Trends – State of Victoria (Australia)
• E-litigation Practice Note issued 7 February, 2007 provides guidance on managing civil litigations where electronic documents involved. • Court expects lawyers to have:
– ascertained number/categories of discoverable documents; – conferred with other parties about retention and production of electronic documents; – given notice of problems in providing discovery of any of these documents;

• Court may order:
– a party to provide hardware and software to enable access to electronic documents – the parties to retain an IT consultant to assist compliance

• Costs of managing e-litigation recoverable from the unsuccessful party Message: Corporations need to proactively manage all of their documents or risk:
– inability to properly defend proceedings – being subject to civil or criminal sanctions

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Global Trends – United States
Federal Rules of Civil Procedure (FRCP) • The FRCP govern court procedures for civil suits in federal trial courts. • Significant amendments to FRCP effective December 1, 2006 specifically to address electronic discovery • Concept of ‘electronically stored information’ (ESI) introduced • Changes introduced in part to encourage parties to meet early to understand scope and complexity of identifying ESI to:
– Avoid discovery disputes – Minimise costs associated with eDiscovery (estimated 35-40% cost savings over paper-based discovery)
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Global Trends – United States
Amended FRCP will require careful attention to detail
• Parties now must prepare and identify ESI in their possession, custody or control upon becoming aware of potential litigation, so early engagement with your lawyers is essential • Parties must meet promptly after a claim is filed and identify to the other party such matters including:
– preservation arrangements and formats for production – all operating systems – office productivity software – disaster recovery procedures – major system-wide databases – document retention policies – how employees store ESI – Litigation hold policy – types of equipment that may hold ESI – potentially privileged information – Categories of ESI that may no longer be accessible – Likely costs and burdens of making ESI available

• Parties must provide to each other a ‘discovery plan’ that addresses all of the above
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Global Trends – United States
• Exclusions / Exemptions to discovery:
– Data that is privileged – ESI that is ‘not reasonably accessible’ because of ‘undue burden or cost’ Emphasis on the data source, not the data. Egs: – Magnetic backup tapes – Unintelligible legacy data – Fragmented data after deletion But ESI must still be preserved as the requesting party can still access such data by showing “good cause”. NB: Not knowing the contents of media does not make it ‘not reasonably accessible’.

• ‘Safe Harbor’ – No court sanction for loss of ESI due to routine, goodfaith retention programs

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Global Trends – United States
• Impact of amended FRCP:
– It is likely to affect the way corporations currently organize, maintain, alter, delete and archive ESI. – A corporation’s IT personnel will need to understand what changes may be needed to IT systems that store information electronically. – IT personnel and the lawyers will need to work together! – Know where your ESI is before the lawsuit begins

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ESI – Traps for the unwary
And then the traps while seeking to comply:
• ESI:
– Contains more information than paper documents – Data content more difficult to totally discard

Metadata, system records and deleted files are new sources of discoverable information when compared to paper records • Metadata:
– ESI contain hidden information which is discoverable – Shows a document’s format, how, when and by whom it was created, saved, reviewed or modified (egs. Microsoft’s basic menu interface/track changes functions or emails which capture dates, times). – Documents may need to be accessed in native format to preserve discoverable information – Real example: • Client is billed for 4 hours work at partner’s hourly rate • Document metadata shows only 1 hour’s work at associate’s hourly rate Oh dear !

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ESI – Traps for the unwary

• Ghost data – routine deletion of a computer file does not delete that file
– File is renamed and removed from internal directory, enabling overwriting if needed – As memory and storage capacity increase, less likely that the file locations are ever entirely overwritten

• Network records:
– Automatically generated records of their own activities – Identifies who had access to data, structure of files, when backups performed, etc

• “Have you met my computer forensic expert”?!

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Duty to preserve documents
• Companies must stop deletion of relevant records when litigation is reasonably foreseeable (egs. Demand letters/Subpoenas) • Must preserve potential evidence • Understand your IT systems now • In-house counsel must be able to:
– – – – – issue a ‘litigation hold’ notice ensure the suspension of data destruction instruct employees to preserve and produce ESI when required communicate with ‘key employees’ identified as having relevant information make sure all backups cans be identified

• Foreign related companies (international operations) of a US multinational must initiate corresponding processes so they can respond to investigations or litigation with minimum business interruption.
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FRCP – Are you ready?
So how ready are Corporations to respond to the amended FRCP?
More Statistics: September 2006:
– 35% of organisations (with at least 1000 employees) do not have an email management strategy – Over 50% of surveyed organisations confused email back-up with email archiving (ie. massive .pst back-up files without knowledge of the data retained)
(Association for Information and Image Management - www.aiim.org)

October 2006:
– Only 7% of responding Corporate Counsel felt their corporation could comply with all FRCP rules
(Association of Corporate Counsel, Annual Meeting, October 2006)

February 2007:
– Only 6% of corporation employees responsible for email policies felt fully prepared to comply with FRCP rules. – only 38% of respondents were familiar with the new amendments – 45.9% of respondents had no retention policy for emails – which is a critical requirement to comply with amended FRCP – 56% of respondents were still planning changes and unsure of whether they would comply
(Fortiva survey, 2007)
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The Risks of Non-Compliance
What constitutes failure to comply with eDiscovery rules? • Spoliation of evidence
– Wilful withholding, hiding or destruction of evidence relevant to a legal proceeding – Unreasonable or inconsistently enforced document retention policy – Failure to preserve information on backup tapes

• Discovery violations
– negligence in production – delays in production – Incomplete or inaccurate disclosure

What are the penalties for failure to comply with eDiscovery rules? • Ask the “large, well respected US Corporations”! • Monetary penalties • ‘Adverse influence’ jury instruction • Preclusion of own evidence (defendant’s employees not allowed to testify) • Entry of judgment against failing party

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Strategies to consider to ensure compliance with FRCP
A corporation can demonstrate its intentions to comply with eDiscovery rules by:
1. 2. 3. 4. 5. 6. 7. 8. Making sure the entire corporation is committed Having a robust records management program Having mapped and described its IT systems at the enterprise and operational levels Assigning a senior attorney exclusively to eDiscovery and records management processes and compliance and perhaps an eDiscovery Manager Demonstrating processes that enable the prompt ability to locate, preserve and retrieve relevant data Demonstrating it can conduct efficient and detailed searches across the entire corporation’s IT systems Implementing a comprehensive data retention/deletion policy and email archiving system that is tied to the records management policy Enabling the automatic deletion function for email to be disabled, if necessary
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Strategies to consider to ensure compliance with FRCP (cont)
9. The creation of a questionnaire (and completed by IT personnel) to map and describe enterprise and operational business unit IT systems that process and store electronic information that covers:
– – – – – – personal computer and server structure disaster recovery / business continuity employee departure or transfer Legal Hold Process ESI Collection procedures is expressed in a form suitable for presentation to (and can be understood by) outside counsel, opposing counsel and the Court)

10. … and be kind to your lawyers!

This presentation does not constitute legal advice or any recommendation by CSC. Participants are encouraged to consult their own legal advisers on the subject matter presented.
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Experience. Results.
Thank you.