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E-mail, that ubiquitous tool of modern American business, is taking on another role. It is the litigator’s new smoking gun. Every month, it seems, another story surfaces in which an e-mail turns out to be the proof that makes or breaks a case. And these are just the ones that make the news. As many litigators are learning, e-mail is proving to be a virtual gold mine of evidence. Or, in some cases, a minefield. It all depends, of course, on which side you are on. In the case of Merrill Lynch & Co., the world’s biggest brokerage firm is probably cursing the day e-mail came into its corporate life. Last month, New York Attorney General Eliot Spitzer publicized a stack of internal e-mails written by Merrill Lynch research analysts to support his claim that the firm misled investors by issuing overly positive stock ratings of companies with which it had or hoped to get investment banking business. Some of the e-mails showed analysts privately disparaging companies they were publicly touting, describing them as “crap” or “junk.” Others showed analysts fretting over the pressure they felt from the banking division. “I think we are off base on how we rate stocks and how much we bend backwards to accommodate banking, etc.” read one typical e-mail. The verdict is still out on how damaging the e-mails will actually prove to be — Merrill Lynch submits they were taken out of context — but suffice it to say that plaintiffs’ lawyers are rubbing their hands in glee over the evidence the attorney general has handed to them. E-mail has also proved to be the bane of another company under the glare of government regulators, the accounting firm Arthur Andersen. Andersen is under indictment for obstruction of justice for electronically shredding documents related to its auditing work for the beleaguered energy firm, Enron Corp. An e-mail was one of the first indications of what Andersen was up to. The message, sent at the request of the partner in charge of the Enron account on the day the firm was served with a subpoena, read, “Stop the shredding.” OUT-OF-CONTROL E-MAIL Instances of e-mails biting the hand that types them are nothing new. Two years ago, the highly publicized antitrust case against Microsoft Corp. turned largely on incriminating e-mails written by Microsoft executives. Another lesser known, but equally alarming case involved American Home Products, which was sued for problems associated with the diet drug Fen-Phen. After fishing through over 33 million e-mails, plaintiffs’ counsel discovered a message from someone in accounting complaining, “Do I have to look forward to spending my waning years writing checks to fat people worried about a silly lung problem?” The company, which was being sued in part for reckless indifference to human life, settled the case for a record $3.75 billion. Despite the obvious dangers posed by out-of-control e-mail, companies have been slow to clean up their own houses. A survey last fall by the American Management Association, U.S. News & World Report magazine and the ePolicy Institute, a Washington consulting firm, found nearly 40 percent of companies still allow employees unrestricted use of company e-mail. Kristin M. Nimsger, a legal consultant at the electronic data recovery firm Ontrack Data International Inc. in Eden Prairie, Minn., said she is not surprised. “We have some of the biggest corporations in America among our clients and they haven’t even begun to think of this issue,” she said. But the problems Merrill Lynch and Andersen are now facing seem to have opened Corporate America’s eyes, she said. “They’re seeing that they need to get control of their e-mail.” 1.4 TRILLION E-MAILS Electronic evidence, especially e-mail, is taking over business litigation, not just because e-mail has become the default mode of communication in the workplace — last year, U.S. businesses generated more than 1.4 trillion e-mails — but also because of its unique features. First, e-mails are very difficult to get rid of. “We can recover them about 90 percent of the time,” said Paul French, a computer forensics manager with New Technologies Inc., an electronic data recovery firm in Gresham, Ore. “Deleted” e-mails are not actually deleted, but simply renamed and removed to another part of the computer’s hard drive, where they typically remain forever, he explained. You have to go to fairly extraordinary lengths to take old e-mails off a hard drive, Nimsger said. She recalled a case in which an employee who knew his laptop was about to be searched jumped up and down on it then threw it out the window into a swimming pool. “We still got the e-mails,” she said. Even obliterating your hard drive — say, by shooting your computer, as happened in another case Nimsger worked on — may not be enough. Because e-mails are sent over a network system, they tend to live on in several different places, including servers, other computers and any back-up systems that are used. Most people, however, do not think of e-mail as permanent, said Robert Eisenberg, a legal consultant with New Technologies. And because it is so quick and informal and seemingly private, employees will say things in an e-mail that they would never say in a formal memo. “People treat e-mail as if they are having a discussion at the water cooler,” Eisenberg said. AVOIDING E-MAIL PITFALLS Companies can do a lot to avoid e-mail pitfalls. Many firms already monitor its use: the American Management Association reported last year that about 62 percent of major U.S. companies do so, up from 15 percent in 1997. However, monitoring alone is not enough, Eisenberg said. Employees also need to be educated and trained in its proper use. “People find it insulting that they actually have to be warned about e-mail use, but they do,” he said. Firms are also wise to establish electronic document management and retention protocols. Systematic procedures for purging old unnecessary e-mails and other electronic documents not only reduce the chances of an employee’s impolitic e-mail coming back to haunt the employer, but also helps keep records at a manageable level. The sheer volume of electronic documents most businesses generate can make it incredibly expensive to comply with a discovery demand in the event of a lawsuit. Before setting up a document retention/destruction program, though, companies need to do some legal digging. “There are literally thousands of different laws and regulations that circumscribe what you can keep and what you can get rid of,” said C. Evan Stewart, a litigation partner at the New York office of Winston & Strawn. Firms in heavily regulated industries such as financial services and insurance need to be especially careful, he said. For instance, Merrill Lynch could not have destroyed the e-mails uncovered by Spitzer even if it wanted to. A 1997 Securities & Exchange Commission regulation requires broker-dealers to archive all business-related e-mails in an easily searchable format. Courts in general have become increasingly less tolerant of businesses with unwieldly electronic document retention policies. “You have an affirmative duty to maintain evidence,” said Nimsger. “If you don’t know what it saves and how it works, that’s your problem.” Finally, Stewart said, companies need to know when to suspend document-handling policies to avoid charges of spoliation or destruction of evidence, the problem that has now brought Andersen before a Houston jury. He said the commonly held belief that the triggering event requiring the preservation of documents is the initiation of a lawsuit or issuance of a subpoena is not well-founded. What matters is the pendency or imminence of a “proceeding,” he said. Of course, e-mail evidence is not always bad news for a firm. A few years ago, Eisenberg said, a client of his sued its former chief executive who quit shortly before the company’s initial public offering to start his own rival business. When they searched the CEO’s computer, they found ‘to do’ lists with items such as “nuke IPO,” and “find out how to shred e-mail.” He also e-mailed himself the company’s client database and trade secrets before he left. “These are things you dream of finding,” Eisenberg said.

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