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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. says 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 ’90s. 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 percent of the companies surveyed don’t have a formal system for holding records, and 65 percent 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 Companies 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. 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 organizations, 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. HOUSE IN ORDER 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. The case that seared electronic discovery into the public consciousness was the Justice Department’s landmark antitrust trial against Microsoft in 1997. The Redmond, Wash., 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. THEY WANT EVERYTHING 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 says, 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’s 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. 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, 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’s 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. In the costliest case so far, a state judge in Florida ordered a default judgment against Morgan Stanley because of what she saw as the bank’s bad-faith delays and abuse in e-discovery. That resulted in a $1.45 billion verdict. The investment firm is appealing. Sensing lawyers’ and judges’ mounting panic over e-discovery, bar and judicial groups are struggling to bring sense to the process. To that end, the federal Judicial Conference has proposed new discovery rules with the aim of bringing the law in sync with technology. And the National Center for State Courts in Williamsburg, Va., has put out discovery guidelines for state trial judges and rule-making committees. Both the state guidelines and the proposed federal rules look to a document called the Sedona Principles. The document is the product of a group of in-house and law firm lawyers, judges, and academics at the Sedona Conference. Its e-discovery group was co-founded in 2002 by Thomas Allman, at that time the general counsel of chemical giant BASF Corp., to push for uniform guidelines. Allman is now senior counsel in the Chicago office of Mayer, Brown, Rowe & Maw. After about 18 months of work, Allman says, the group settled on 14 principles designed to make the e-discovery process more predictable. Richard Braman, executive director of the group, says the underlying theme of the principles is “meet early with opposing counsel and get a framework in place for resolving [e-discovery] issues.” Allman says the Sedona Group continues to work on other e-data issues, such as how best to manage old e-mail and how to implement a litigation hold process that does not interfere with daily business. In July the group issued a set of “best practices” to help in-house counsel in selecting e-discovery vendors. Members of the Sedona Group testified earlier this year before the standing rules committee of the federal Judicial Conference, which in June proposed e-discovery changes to the federal rules of civil procedure, borrowing heavily from the Sedona Principles. If the proposal clears the Judicial Conference, a group of 27 federal judges, it goes on to the U.S. Supreme Court for review and could be instituted in December 2006. Gregory McCurdy, a senior attorney who works on e-discovery at Microsoft, and who testified before the rules committee, calls the proposal a “reasonable approach” to e-discovery. Some of the rules are controversial. One rule establishes a safe harbor, protecting defendants who make good-faith efforts to produce data. It would protect, for example, a defendant who recycled backup tapes if the recycling was done in the ordinary course of business and absent a litigation hold order. The second controversial rule creates a two-tier approach to discovery requests. It calls for balancing the need for hard-to-access data against the cost and burden of producing it. The rules don’t sit well in particular with some plaintiffs lawyers. James Batson, a partner at Liddle & Robinson in New York, represents Laura Zubulake in the case against UBS Warburg. Batson says those two proposed rules favor the defense bar, are “entirely unnecessary,” and would diminish a judge’s choices when dealing with a recalcitrant corporation. But the judge in the case, Scheindlin, said in an interview with Sedona Conference participants that the two rules would probably not have changed her rulings in the case. Meanwhile, some in-house lawyers are wasting no time trying to get a handle on their companies’ digital realm. For them, the e-writing is on the wall. Michele Coleman Mayes, senior vice president and general counsel of Pitney Bowes Inc., says the Morgan Stanley case “keeps me awake at night.” As a result, her company hired an outside expert to explore how to improve Pitney Bowes’ information systems. Mayes says the task is complicated by the fact that the Stamford, Conn., business equipment and services company has documents spread out in departments and sites all over the country. Pfizer has taken an even bigger step. The New York-based drug giant hired Laura Kibbe as senior counsel to work full time to build a better in-house e-discovery process. Working with her is lawyer and consultant George Socha Jr. He says that to his knowledge Pfizer is the first company to hire someone full time to do the job. For her part, Kibbe, who in January left private practice at Kaye Scholer in New York, says the e-discovery revolution has placed significant new burdens on her colleagues in the legal department. “You can’t hide behind the fact that there are 452 divisions and none talk to each other,” Kibbe explains. As part of these projects, many corporate counsel are having to take on yet another role: that of a liaison between the information technology staff and the company’s business units. For many of them, it’s meant a steep learning curve as they divine where and how the company’s digital secrets are stored in vast, decentralized computer networks. And that’s a job, says Microsoft’s McCurdy, that is uniquely suited to the in-house legal department, not outside counsel. “You can’t just delegate that,” he says. The first task for many of them is to get a handle on the staggering volume of what’s out there. Personal computers typically have storage capacities of a couple of hundred gigabytes, with one gigabyte of data roughly equal to 75,000 paper pages. But large corporations like Microsoft or Pfizer talk in terms of storing terabytes, from the Greek word “tera” meaning “monster.” Each terabyte equals 1,000 gigabytes. There’s a language barrier, too. People often joke about it, but computer techs really do speak a different language than the rest of the company, including the lawyers. So in-house counsel have had to learn tech lingo quickly. To help them, the Sedona Group published a 50-page glossary of words commonly used in e-discovery � from “ablate,” which describes a process of burning info onto optical discs like DVDs, to “Zone OCR,” an imaging software feature that places text into a document index. One of the harder lessons lawyers have to learn is � no surprise � the technology doesn’t always work. Socha, the consultant, tells a story about a befuddled client he had a few years ago � a high-tech company that should have known better. The plaintiffs in a large suit wanted e-mail messages from about 50 people from the previous year. The company told the court, “No problem, because we have all the backup tapes.” Wrong answer. “I said, ‘Show me,’ ” Socha recalls. They “ fussed and fumbled and finally ‘fessed up” that they couldn’t extract the data without incurring astronomical costs. Socha says they told the plaintiffs, “who laughed about it” and gave up their demand for the e-mails. In today’s take-no-prisoners environment, he notes, that would never happen. Nailing down which files are where is only the beginning. Now comes the tough job: getting everyone from vendors to paralegals to outside counsel to work together and screen what’s there. While technology can be unwieldy and balky, people can be unpredictable. Marathon Oil coordinated its e-discovery efforts the old-fashioned way � by putting together a committee. Kerrigan formed an interdisciplinary team of experts to coordinate the company’s e-discovery efforts. The core team includes in-house and outside counsel, along with an internal IT expert and an external vendor, and “grows as the complexity of a request grows,” Kerrigan adds. Once the data is mined, it has to be reviewed. And that process can be daunting. The traditional method is to pump e-documents into an online review site, and hire a bunch of contract attorneys to sit in front of the computers all day to try to look for what is relevant or privileged. When tens of millions of documents are involved, that can be time-consuming and expensive � as much as seven figures, according to Kerrigan. Mary Ann Kim, manager of litigation support at E. I. du Pont de Nemours and Co. in Wilmington, Del., is testing new software to cull e-documents. Kim says that just throwing vendors and attorneys at e-data is no longer good enough. If the new software, by a Mountain View, Calif., company called MetaLINCS, works well enough, it will allow DuPont to bring more e-discovery in-house. But even with new software and new guidelines, Marathon Oil’s Kerrigan thinks it could be five years before the e-discovery frenzy calms down and courts offer clear directions on what companies must produce. Until then, Kerrigan adds, e-discovery “is like planning for Armageddon. No one knows how much is enough.”
Sue Reisinger is a reporter for Corporate Counsel , the ALM publication where this article first appeared.

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