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When the government unleashed a barrage of damaging e-mail during the Microsoft antitrust case six years ago, electronic discovery entered the popular consciousness. Recent cases as well as proposed changes to the federal rules of procedure add a new urgency to the subject, but there are signs that not everyone in the legal profession is paying attention. Microsoft has not stood alone. The case against former Credit Suisse First Boston investment banker Frank Quattrone rested on one e-mail message. He was found guilty of obstruction of justice and sentenced to 18 months in prison. His case underscores the difficulty of managing electronic materials. Not only must lawyers contend with potentially damaging e-mail, but also they must oversee electronic retention programs that present different difficulties from traditional document maintenance at a company. Two recent decisions by federal courts in New York and Washington, D.C., punished litigants for failing to adhere to judicial instructions regarding the preservation of electronic materials. As companies apply more technologies to their business — from BlackBerry communications to instant messaging — electronic discovery will spread into new media. A voice message left by a supervisor with her assistant, fraught with innocuous yet impetuous statements, could become damaging evidence at a trial. The federal bench has added its input by issuing provisions to manage electronic discovery. These rules, set to go into effect in 2006 after an extended comment period, are another warning for litigators. Despite the brewing storm, many lawyers and their clients remain ill-prepared for the thorny issues introduced by electronic discovery, some experts say. “The biggest mistake is that people don’t pay attention to it,” said Edward Grass of Shaw Pittman’s Virginia office. “We’re in a transition period right now,” in which the issues have not yet been fully litigated and resolved. “Until that happens, it is a minefield for people.” Plenty of mines exploded when New York Attorney General Eliot Spitzer entered into multibillion-dollar settlements with Wall Street’s biggest players in recent years. He came to the negotiating table with a bevy of embarrassing and inculpatory e-mails sent between employees at firms like Merrill Lynch. In one breezy outburst, an assistant vice president e-mailed a lead stock analyst there the following message: “the whole idea that we are independent from banking is a big lie.” Spitzer’s settlements forced the financial giants to disentangle their analysts from the investment banking divisions and demanded research from entities completely independent of these institutions. Class action lawyers picked up the e-mails and have used them against the banks in their suits. E-mail tends to be more damaging than paper documents,” said Robert Giuffra Jr. at a recent Federal Bar Council meeting. While employees tend to treat memos and letters with a degree of formality, they routinely write e-mails in haste and with little thought to how they may be perceived. Instant messages and cell phone text messages are even more dangerous as employees use truncated terms to respond to nuanced situations often from airports or in a taxi cabs where distractions make them less inclined to think through their words. “It’s amazing the kinds of things people will write on e-mail,” warned Giuffra to the group of listeners. These messages, splattered in the courthouse before jurors, are difficult to explain away by litigants despite honest misinterpretations of the context and tone they were written in. “It’s the 21st century version of the telephone,” he said in an interview, and few companies have begun to educate employees on the proper use of e-mail communications. DISCOVERY BLUNDERS Stinging e-mails received much of the attention in recent years, helping to bring down Quattrone and Arthur Andersen, once one of the five largest accounting firms in the world. What receives less attention are discovery and electronic retention blunders. These errors cost two companies dearly in recent cases. In Zubulake v. UBS Warburg, Southern District of New York Judge Shira Scheindlin skewered UBS and its lawyers for willfully deleting e-mails sought in discovery and delaying the delivery of electronic materials. Miscommunications between UBS lawyers and employees charged with preserving relevant files shouldered most of the blame. Employees also deleted files despite explicit instructions to the contrary. “[C]ounsel failed to properly oversee UBS in a number of important ways, both in terms of its duty to locate relevant information and its duty to preserve and timely produce information,” the court held. As punishment in this employment discrimination case, the judge ordered the jury to assume that the lost e-mails contained damaging information against UBS and required the bank to pay for the costs of litigating the discovery dispute. Philip Morris received more than a slap on the wrist for its mistakes. In a $280 billion monumental case in which the United States has charged it with racketeering and fraud for allegedly masking the dangers of cigarette smoking, 11 top-level employees continued the policy of deleting 60-day-old e-mails contrary to the district court’s order based in Washington. The court in July prohibited the employees from testifying on behalf of the cigarette maker and fined the company $2.75 million. E-mail changed the way the government prosecutes cases, said Giuffra. The Sullivan & Cromwell partner recently represented Computer Associates in its investigation and settlement with the government on securities violations. The Securities and Exchange Commission will ask for all e-mails related to an individual employee rather than by limiting its inquiries to narrow topics under investigation. These documents often end up in the hands of plaintiffs’ lawyers in corresponding civil cases, he added. “If you don’t save and collect e-mail,” he continued, “you’re missing 75 percent of discovery.” In August, the federal judiciary published proposed rules specifically focusing on electronic discovery. The proposals, due to go into effect in December 2001 reinforce and clarify the rules already in place, Grass said. They add the element of reasonableness, he said. Under the proposed rules, parties who hold inaccessible materials will no longer have an absolute obligation to turn over those materials. Despite well-publicized disasters, Giuffra said, he is worried that many attorneys and companies have paid little attention to the subject of electronic discovery or the new rules. It is time for a wake up call, he said. Judge Scheindlin issued a similar warning in the Zubulake decision. “The subject of the discovery of electronically stored information is rapidly evolving,” she held. “Now that the key issues have been addressed and national standards are developing parties and their counsel are fully on notice.”

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