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Corporate counsel involved in litigation have long been frustrated by paying for document retrieval and review by junior associates and paralegals, but the idea of paying e-discovery vendors to process electronic documents into searchable databases is a 21st century aggravation. Considering that the costs of such processing for a large dispute can total hundreds of thousands, or even millions, of dollars, it is especially important to understand why they are so high, on whom the courts are placing this burden, and what you can do to rein in the expense. Even a casual observer of corporate life knows that employees create far more e-mails and other documents electronically than on paper. (In fact, currently 93 percent of business documents are created electronically; most are never printed.) And because a single e-mail can be sent to dozens, hundreds, or even thousands, of recipients with a few clicks, those multiple copies all end up being stored over and over again. Worse, most companies store their electronic documents in any number of systems — corporate servers; employee hard drives; intranets and extranets; outsourced e-mail providers; consumer electronics with storage capabilities, like personal digital assistants — and multiple copies of each are stored on backup tapes. The result: an unprecedented volume of documents requiring review for relevancy and privilege. The good news is that once these electronic documents are placed in a searchable database, it is much easier for litigators to find relevant documents, privileged documents and “smoking guns.” The bad news is that finding and reviewing all these documents in all these places costs big money (unless the company has a smart, proactive program for electronic records management). But some relief is on the way, courtesy of the federal courts. NEW DECISIONS OFFER RELIEF While the Federal Rules of Civil Procedure presume that the producing party bears discovery costs, recent jurisprudence has moved away from this presumption when it comes to electronic discovery, making it possible for producing parties to shift the costs to the requesting parties, especially in cases where data is inaccessible. This trend could potentially save corporations millions of dollars. One important case in this line of decisions was decided in early 2002. In Rowe Entertainment Inc. v. The William Morris Agency Inc. (S.D.N.Y.), U.S. Magistrate Judge James Francis IV held that “it is not enough to say that because a party retained electronic information, it should necessarily bear the cost of producing it.” Employing an eight-factor analysis, he ordered the plaintiffs to bear the costs of producing the e-mails. The Rowe factors can often result in a finding that the costs of electronic discovery should be shifted to the requesting party. That decision was reaffirmed, albeit weakened (from the perspective of those seeking cost shifting), by U.S. District Judge Shira Scheindlin’s more recent decision in Zubulake v. UBS Warburg, (S.D.N.Y. May 13, 2003). Scheindlin, who had published a law review article on the effects of technology on the discovery process, used the occasion of a routine discovery dispute in an employment discrimination suit to reconsider Rowe. She concurred with Magistrate Judge Francis that document production costs could, in certain situations, be shifted to the requesting party, but limited cost shifting to where data is maintained in an inaccessible format. Judge Scheindlin also revised the Rowe balancing test to seven factors, to be applied hierarchically from most to least important, in an effort to reduce the test’s perceived slant in favor of cost shifting: 1. The extent to which the request is specifically tailored to discover relevant information. 2. The availability of such information from other sources. 3. The total cost of production, compared with the amount in controversy. 4. The total cost of production, compared with the resources available to each party. 5. The relative ability of each party to control costs and its incentive to do so. 6. The importance of the issues at stake in the litigation. 7. The relative benefits to the parties of obtaining the information. The upshot is that under Zubulake, some discovery costs may be shifted to a requesting party, but only in certain circumstances. Indeed, in a follow-up decision in the same case last month, Judge Scheindlin ruled — after balancing all of the factors — that the plaintiff would have to bear only 25 percent of the cost of restoring and searching the computer backup tapes in question, and none of the costs associated with defense counsel’s review of the retrieved documents. Notably, the May 13 Zubulake decision also cites “The Sedona Principles: Best Practices Recommendations & Principles for Addressing Electronic Document Production,” published last March. This report is the work product of the Sedona Conference Working Group, a private assemblage of respected practitioners. Sedona Principle No. 13 calls for shifting the cost of retrieving and reviewing electronic information “absent special circumstances” if “the data or formatting of the information sought is not reasonably available to the responding party in the ordinary course of business.” The Sedona Principles also advocate cost shifting, absent special circumstances, for electronic discovery involving “extraordinary effort or resources,” including “deleted tapes, residual data and legacy systems and tapes.” Though they do not define “special circumstances,” the Sedona Principles do endorse the Rowe seven-factor analysis. TAKING RESPONSIBILITY While today’s jurisprudence enables corporations to shift production costs to plaintiffs when data is inaccessible, it makes more sense from a litigation perspective to limit costs by keeping corporate records in a more easily accessible format. One of the co-chairs of the Sedona Conference Working Group, James Michalowicz, business manager of the DuPont legal department, believes that corporations should look beyond the Rowe and Zubulake approaches. Instead, he says, “corporations need to be proactive and recognize that [they have] certain responsibilities with respect to management of their electronic records.” To that end, a Sedona Conference Working Group paper, due out in October, will focus on guidelines for how corporations should approach electronic records management. This second paper will provide guidance on setting up an appropriate and accessible internal electronic records program. Separate from the issue of discovery cost exposure, having ready access to your company’s or client’s electronic records is part of an effective early case-assessment program. When you can find all the relevant documents easily, you can more quickly assess your exposure, determine whether helpful, unhelpful, or even “smoking gun” documents exist, and better predict likely outcomes. Unlike fine wines, few cases improve with age. Earlier and better-informed resolutions can potentially save millions in judgments, legal fees, and “courthouse steps” settlements. Recent case law allows for some relief from the high costs of producing your company’s inaccessible documents. But a better strategy to limit long-term litigation costs may be to implement smart electronic records management procedures and make your documents more easily accessible and searchable. Doing so not only limits the hassle and cost of production, but also can advance an overall litigation strategy. Patrick J. Burke is technology counsel at nMatrix Inc., a New York-based company offering electronic discovery services. He may be contacted at [email protected]. Daniel M. Kummer is vice president, litigation, at the National Broadcasting Co. in New York.

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