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On Dec. 1, 2006, the Federal Rules of Civil Procedure were amended to specifically address the discovery of electronically stored information (ESI). The amendments encourage addressing discovery of ESI as early as possible in litigation, provide a procedure for post- production assertions of privilege, address the forms in which ESI is produced, provide an analytical framework for the preservation and production of ESI that a party deems not reasonably accessible and tailor the application of sanctions to the discovery of ESI. These amendments have been described as incremental, or evolutionary. However, when properly used, technology should lead to faster, more efficient discovery provided the rules are interpreted and applied in accord with Rule 1′s mandate that they be “construed and administered to secure the just, speedy, and inexpensive determination of every action.” The rules provide an expansive definition of ESI that covers any information that can be stored electronically. Unlike paper records, which were generally stored in a central repository, electronic records are easy to duplicate and multiple copies may reside in numerous locations. These electronic records can also be saved, retrieved and produced in a variety of file formats. To complicate matters even further, ESI is often stored on backup tapes in a compressed format and retained in that form long after the original files have been deleted. Retrieving information from backup tapes is generally more costly than retrieving information that is being actively used, although technological advances and new storage systems may blur this distinction. The form in which ESI is produced has long been a point of contention between parties and can greatly affect the ease of review and the utility of the production due to both the dynamic nature of certain ESI and because electronic records contain far more information than equivalent paper records. In native format (the form in which the information was created), electronic files contain both “system metadata” and “application metadata,” which provide information that is not always available when ESI is produced in TIFF (tagged image file format) or paper form. System metadata provide such information as a file’s name, author, location, format and the dates on which a file was created, last modified and last accessed. Such information is clearly useful to both parties for searching large quantities of ESI to narrow the universe of documents to be substantively reviewed based on, for example, the date a document was created. Examples of application metadata include the formulae behind the numbers in spreadsheets, and comments or redline changes in word processing documents. This type of metadata may be of probative value evidencing, for example, the changes in the draft of a contract. Certain dynamic file types, such as spreadsheets and databases, are simply not reducible to a flat, two dimension representation such as that provided by TIFF format. A common objection to producing metadata is the increased burden of reviewing this additional information for privilege or attorney work product, although this objection is more applicable to application rather than system metadata. Also, parties often cite authenticity concerns as a reason for refusing to produce in native format despite the lower cost of doing so. However, there are numerous solutions to this problem, from production in an unalterable, read-only format to the application of algorithms which can swiftly and inexpensively reveal whether a file has been altered. Although ESI has traditionally been produced in TIFF format, production in native format is becoming more common and is likely to become the standard both because it is less costly and because it is more useful. Given the myriad forms of production available, it clearly behooves the parties to discuss this issue in detail at the earliest possible point in the litigation to avoid later, costly disputes. Rule 16 encourages parties to address in the initial scheduling order the issues surrounding discovery of ESI. Rule 26(f) directs the parties to discuss the discovery of ESI during their discovery planning conference and to consider issues including the capabilities of the various computer systems used by the parties, the form or forms in which ESI could be produced, whether the information is “reasonably accessible” and the preservation of discoverable ESI. Rule 26(b)(2)(B) provides that a party need not provide discovery of ESI that it identifies as not reasonably accessible because of undue burden or cost, although such information is subject to preservation. The burden is on the producing party to show that the information is not reasonably accessible, and courts may still order discovery if the requesting party can show good cause, and the costs are outweighed by the potential benefits of providing the ESI. Rule 34(a) allows the requesting party to specify the form(s) in which ESI will be produced. When the requesting party does not specify the form, the responding party must produce ESI in the form in which it is ordinarily maintained or a form that is reasonably usable, but may not produce it in a form less useful or searchable than the form in which it is normally maintained. Rule 37, which provides for sanctions when a party fails to make disclosures or cooperate in discovery, is amended to address the operation of computer systems, which are often designed to automatically delete or overwrite ESI after a specified period of time or when a certain data volume limit is reached. Rule 37(f) provides that a court generally may not sanction a party under the rules for failing to produce ESI when the routine, good-faith operation of a computer system caused the loss or destruction of the information. Notably, the steps taken by a party to effectively implement a litigation hold are considered in deciding whether a party acted in good faith. Additionally, the committee notes explain that implementation and design are considerations for evaluating whether the operation was routine and in good faith. Judges will need to become increasingly familiar with these complex, technical issues in order to properly apply the new rules. Judges should ensure that these rules are viewed through the lens of Rule 1, and that parties use technology to make discovery more efficient and less expensive. Early, candid discussions Given the potential for costly, time-consuming disputes over such matters as the locations to be searched for responsive information, the extent to which information is reasonably accessible and the forms in which ESI can be produced, judges are likely to order early, candid discussions between the parties, which will result in more comprehensive discovery orders and more narrowly tailored discovery requests. An iterative approach to discovery will be needed in complex cases, given the difficulties of reaching early agreement on the scope and manner of discovery in cases involving multiple parties and myriad issues. As judges grow more sophisticated, and storage and retrieval technology improves, a party’s designation of ESI as not reasonably accessible, and thus not subject to production, likely will be met with less acceptance by the courts, especially in cases in which the difficulty of retrieval results from a failure to carefully index and catalogue the information being stored. Familiarity with the utility of production in native format should lead judges to support parties’ requests for native production. See Goss Int’l Americas Inc. v. Graphic Mgmt. Assocs. Inc., No. 05 C 5622, 2007 WL 161684 (N.D. Ill. Jan. 11, 2007) (ordering production of e-mails and attachments in native format). Finally, when the “routine, good faith operation” of computer systems is raised as a defense to sanctions when information has been lost, judges may be called upon to decide whether the system was designed and implemented in good faith or with the intent of thwarting discovery. See Treppel v. Biovail Corp., 233 F.R.D. 363 n.4 (S.D.N.Y. 2006) (noting that the conversion of data to a less accessible format, making the future recovery of information more costly and burdensome, violates the preservation obligation). Lawyers should know details As with the judiciary, the technical sophistication of lawyers varies greatly. In order to represent their clients properly, lawyers will need to gain a clear understanding of the complexities attending the discovery of ESI and the computer systems employed by their clients. Simply knowing that information is electronically stored is insufficient, given the variety of forms of production and the justifications for choosing one form over another. Lawyers should be familiar not only with the overall design of a client’s computer system, but also with related information regarding retention/destruction policies and procedures. Such knowledge will allow lawyers to ensure that all appropriate locations have been searched for responsive information, assist with drafting and implementing litigation holds, monitor compliance with preservation orders and ensure that any loss of information results simply from the routine, good-faith operation of a client’s computer systems. This will also arm lawyers with the information necessary to engage in the early, candid discussions regarding discovery of ESI contemplated by the rules. Such candid discussions should also provide attorneys seeking discovery with information that will allow them to narrowly tailor their requests. Until a party reasonably anticipates litigation, its preservation obligations are based on business and regulatory requirements. However, consideration of the costs and burdens associated with responding to discovery requirements is appropriate when corporations are designing and implementing information-management policies and procedures because the consequences for failing to comply with discovery requests can be severe. See Coleman (Parent) Holdings Inc. v. Morgan Stanley & Co. Inc., No. 502003CA005045XXOCAI, 2005 WL 679071 (Palm Beach Co., Fla., Cir. Ct. March 1, 2005) (adverse-inference instruction, based on defendant’s destruction of e-mails and noncompliance with discovery orders, that ultimately contributed to a judgment of $1.4 billion against defendant). Corporations should save only the information they need and know what information is being saved, why it is being saved and where it is being stored. Information related to key personnel, such as corporate officers, should be stored separately so that it can be more easily retrieved when needed. This will not only result in lower storage costs but also make responding to discovery requests more efficient and less burdensome. See Quinby v. WestLB A.G., No. 04 Civ. 7406, 2006 WL 2597900 (S.D.N.Y., Sept. 5, 2006) (defendant incurred $226,266.60 restoring and searching inaccessible e-mails of six former employees). As noted above, an increasingly technologically sophisticated judiciary likely will be less receptive to arguments that information is not reasonably accessible when the undue burden results from haphazard or ill-considered decisions regarding the manner in which the information is stored. See Analog Devices Inc. v. Michalski, No. 01 CVS 10614, 2006 WL 3287382 (Guilford Co., N.C., Super. Ct. Nov. 1, 2006) (court reviews the various analytical approaches currently used to evaluate assertions of undue burden and notes that the law will develop and change as technology changes). In addition, care should be taken when designing information-management policies and procedures to ensure they allow for the effective implementation of litigation holds. When considering the form in which to store information electronically, companies must consider their business needs and potential litigation needs. Ultimately, a more holistic approach to information management is needed, with policies and procedures designed with input from corporate officers and counsel. This approach should allow companies to respond quickly and efficiently, rather than react with panic, to discovery requests when litigation arises. The new rules treat ESI as a distinct category of discoverable information and address the complex issues unique to this category of information. To ensure proper application by the judiciary, competent practice by counsel and compliance by parties, an evolutionary approach to discovery is warranted. Judges must become more technologically sophisticated, lawyers must be familiar with their client’s information systems and willing to candidly share information about these systems with opposing counsel, and parties must factor electronic discovery into the design and implementation of information management and storage systems. Ultimately, the proper understanding and application of this technology should result in more efficient discovery and more timely resolution of litigation. Conor R. Crowley practices securities litigation as an associate with Labaton Sucharow & Rudoff in New York. He is a member of the steering committee of the Sedona Conference Working Group on Electronic Document Retention and Production.

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