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Sylvia Kerrigan remembers when she first tackled electronic discovery at her company about two years ago. The assistant general counsel at Houston-based Marathon Oil Corp. said it was like slowly easing herself into a pool of water. Then she started to swim-talking with outside counsel and vendors, exploring services and looking at fancy new software. Finally, she took a tour of Marathon’s information technology department, and that’s when the staggering depth of the problem hit her: “I realized what I considered to be a pool was actually an ocean.” When it comes to e-discovery, many in-house counsel still find themselves in over their heads. To be sure, over the past decade, embarrassing e-mails have figured prominently in a number of high-profile lawsuits, like the U.S. Department of Justice’s landmark antitrust case against Microsoft Corp. in the late 1990s. Not up to speed But despite electronic data’s notoriety, recent surveys show that an alarming percentage of corporate attorneys and their companies still aren’t up to speed. A study by Cohasset Associates Inc., a Chicago-based records management firm, showed that 46% of the companies surveyed don’t have a formal system for holding records, and 65% don’t include electronic documents when they retain documents. The e-discovery stakes have also risen dramatically. This year, plaintiffs have been winning huge awards by going after e-mails found through e-discovery. In August, a jury returned a $253 million verdict against Merck & Co. Inc., when a top scientist’s crucial e-mail suggested that the company knew two years before it put Vioxx on sale that the painkiller might cause heart problems. (Merck has denied this and is appealing.) That verdict came only months after a Florida state jury, finding that investment bank Morgan Stanley botched its e-discovery in the case, awarded financier Ronald Perelman $1.45 billion. Look no further than the headlines for more examples: UBS Warburg, Enron Corp., WorldCom Inc. and Marsh & McLennan Cos. Inc., to name a few companies where execs got caught with their e-mails exposed. So common is New York Attorney General Eliot Spitzer’s demand for e-discovery that he reportedly began a recent speech in front of Wall Street execs with the quip that he was really glad to be there, because he wanted to put faces to the e-mails. As St. Paul, Minn.-based e-discovery consultant George Socha Jr., puts it: “No one wants to be the next Morgan Stanley.” For e-discovery, there’s a classic disconnect between technology and the law, and the law hasn’t fully caught up. Slowly, however, the legal system is coming to grips with it. Bar associations, corporate lawyers and judges are working together on the federal and state levels to bring some coherence and predictability to e-discovery requests. The most prominent of these efforts, an Arizona think tank called the Sedona Conference, recently issued guidelines that have led to proposals to change the Federal Rules of Civil Procedure. Some proposed rules would, for example, provide for leniency if a company makes a good-faith effort to produce electronic data. GCs are scrambling But some savvy in-house lawyers, usually the front line in e-discovery wars, aren’t waiting around for the new rules. They’re scrambling to get their digital houses in order, and in the process are creating new roles for themselves and their departments. For example, Pfizer Inc. has hired a senior counsel to work full-time with consultants to build a new e-discovery system from the ground up. And Marathon Oil’s Kerrigan is placing a dedicated e-discovery coordinator at every corporate subsidiary. How did e-discovery become the bane of general counsel? Blame the rise of corporate computer networks and the Internet. Back in the ’80s, when PCs first became standard desktop fixtures, life was simpler. When an opposing party subpoenaed spreadsheets or contracts or other corporate computer documents, lawyers just printed them out and handed them over. All that changed in the mid-1990s, when plaintiffs’ attorneys realized that e-mail systems and computer servers could be treasure troves of information.
10 NUMBERS THAT CAUSE CORPORATE COUNSEL TO LOSE SLEEP 4.6 BILLION The amount in dollars that U.S. companies will spend internally in 2005 to analyze e-mails. 50 TO 100 The percent of all evidence that is e-mail now. 25 TO 30 MILLION The number of e-mails that Microsoft Corporation receives daily. 59 The percent of companies in a survey that did not have e-mail retention policies. 125 The number of ongoing legal matters in a typical Fortune 500 company, with at least 75 percent of them requiring e-discovery. 1.2 BILLION The amount in dollars that U.S. firms will spend on outside e-discovery services in 2005, projected at $1.9 billion in 2006. 62 The percent of surveyed companies that doubt they can show their e-records are accurate and reliable. 10 The percent of corporate lawyers reporting their businesses settled a case rather than incur the cost of e-discovery. 150 TO 200 The number of backup tapes from Microsoft being recycled every two weeks. It would cost $1.7 million per year to save them. 18 The number of months in prison given to ex-banker Frank Quattrone for sending an e-mail telling Credit Suisse First Boston to “clean up” their files during a criminal inquiry of the bank; he’s appealing. Sources: Sacha Consulting, Ramon Numez, MetaLINCS, Gregory McCurdy, Microsoft Corp., ABA Digital Evidence Project.

The case that seared electronic discovery into the public consciousness was the Justice Department’s landmark antitrust trial against Microsoft in 1997. The software giant balked at the government’s frequent requests for e-mails, and for good reason. Many of them revealed the company’s aggressive business tactics and ultimately proved embarrassing to Microsoft, which eventually settled. After that trial, the race into cyberdiscovery was on. By the early 2000s, nearly every government investigation, regulatory inquiry or class action against a company involved demands for electronic documents. But only recently, Kerrigan said, have plaintiffs started asking for what she calls e-discovery “to the nth degree. They want everything.” Adding to corporate lawyers’ anxiety are a number of court decisions this year that imposed a heavy price on companies that botched electronic discovery. That’s a big change from previous years, in which companies worried about e-discovery only if they ran afoul of the Justice Department or New York AG Spitzer. Sanctions in civil cases were rare, and usually involved only a small fine. Now it’s an issue in nearly every civil case, from shareholders’ suits to employment discrimination complaints. Sanctions handed down Courts in more than a half-dozen cases imposed e-sanctions in the first half of 2005 alone, some of them severe. One case that shook up in-house counsel in particular involved a series of findings against Wall Street bank UBS Warburg (now UBS Investment Bank). In that federal lawsuit, Zubulake v. UBS Warburg LLC, No. 02 Civ. 1243 (SAS) (S.D.N.Y.), an employee sued for sex discrimination and sought e-mails to prove her case. U.S. District Judge Shira Scheindlin issued what are now hailed as six landmark opinions on e-discovery. UBS’ problems with missing e-mails finally resulted in Scheindlin making an adverse inference ruling against UBS that led in March to a $29.3 million verdict-a highly unusual amount in an employment discrimination case. UBS is seeking to overturn the award.

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