Articles

Revised Court Rules Impact Companies' Electronic Information

Carol G. Schley, Esq.
Kupelian Ormond & Magy, P.C.

On December 1, 2006, the rules that govern lawsuits filed in the United States district courts were revised to address issues relating to the discovery of e-mails, text messages and other electronically stored information. The revisions bring the federal court rules into the 21st century and reflect the reality that companies no longer just maintain information in paper form. Among other things, the revised rules impose obligations on companies who have been or may be sued in federal court to maintain electronically stored information relevant to the lawsuit and be able to produce it promptly, or risk being sanctioned by the court.

Prior to the revised rules taking effect, various courts around the county had addressed the discovery of electronic information in lawsuits, with some courts imposing severe sanctions against companies who were unable to produce requested electronic information. For example, in Zubulake v. UBS Warburg LLC, 229 F.R.D. 422 (S.D.N.Y. 2004), the court found that an employer sued by a former employee for gender discrimination failed to preserve emails relevant to the lawsuit. As part of the resulting sanctions against the employer, the court instructed the jury that it could infer that the lost emails would have been unfavorable to the employer. The jury ultimately awarded $29.2 million in damages to the former employee.

From a practical standpoint, the revised rules do not only impose obligations on attorneys with respect to conducting discovery in a federal lawsuit. Companies involved as parties in lawsuits (whether as plaintiffs or defendants) must also take certain actions (or refrain from taking certain actions) when involved in a federal case. For example:

• At the onset of the lawsuit, a company must provide information to its attorney regarding all documents and information that are electronically stored. The attorney, in turn, is obligated to discuss this information with opposing counsel and the court early in the case in order to create a discovery plan.
• In order to timely comply with discovery requests for electronically stored information, companies must have processes and procedures in place to quickly identify and produce electronically stored information by the deadlines imposed by the federal rules (typically 30 days).
• The party requesting electronically stored information may specify the form (e.g., electronic vs. hard copy) in which it wants the information produced. If a particular form is not specified, the producing party must produce the information in the form it is ordinarily maintained or reasonably usable.
• The revised rules allow a party to substitute access to electronically stored information when the burden of searching the information to determine the response would be the same for either party.
• A party is not required to produce information that is "not reasonably accessible because of undue burden or cost." However, such information may still be required to be produced (possibly, at the requesting party's expense) if the requesting party shows "good cause" as to why it needs the information.

Failure to comply with the revised rules could result in sanctions, which as discussed above, could be significant. However, the revised rules provide a "safe harbor" from sanctions under most circumstances if a company cannot produce electronically stored information due to the "routine, good faith operation of an electronic information system." With respect to this "safe harbor," it is advisable for companies to implement and consistently enforce written document retention policies encompassing both non-electronic and electronic information. Further, at the onset of litigation, or when it becomes apparent litigation is reasonably expected, a company should institute a "litigation hold" on all electronically stored information potentially relevant to the claim, in order to demonstrate the company acted in good faith. According to the Advisory Committee Notes to the revised rules, "a party is not permitted to exploit the routine operation of an information system to thwart discovery obligations by allowing that operation to continue in order to destroy specific stored information that it is required to preserve."

In practical effect, the revised rules may be burdensome to comply with for smaller companies who do not have an IT department or the resources required to maintain, search and produce electronically stored information as required by the rules. Larger or more sophisticated companies may be burdened as well, as they may have more than one lawsuit pending at once and will have to ensure that all information relevant to multiple lawsuits is maintained, locatable and adequately protected by a litigation hold.

The meaning, scope and applicability of the revised federal court rules concerning electronically stored information will likely be the subject of much litigation in the upcoming years. In addition, it is anticipated that the rules for Michigan courts, which generally mirror the federal court rules, will at some point be revised to provide similar obligations on parties with respect to electronically stored information.

Carol G. Schley is a shareholder of the Southfield law firm Kupelian Ormond & Magy, P.C. She can be reached at cgs@kompc.com or 248-357-0000.

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