New e-discovery rules go into effect in December

Failure to comply could be costly

New rules for electronic discovery of documents in civil cases go into effect in December -- and they could cost users millions or even billions of dollars if they fail to comply.

Last September, the Judicial Conference of the U.S. Supreme Court's Committee on Rules of Practice and Procedure recommended changes that force companies involved in a civil lawsuit to sit down and hammer out what records are fair game for electronic discovery.

In general, the resulting 300-plus page document describing the new e-discovery criteria says that companies involved in civil litigation must meet within the first 30 days of a case's filing to discuss how to handle electronic data. The discussion must encompass retention practices, the types of records required and their electronic format, as well as what is considered "accessible" data, said John Bace, an analyst at Gartner Inc. in Stamford, Conn.

Failure to comply with the new rules could be costly.

Morgan Stanley was fined $1.5 billion -- half of which was punitive -- in May 2005 when a judge ruled that it had failed to preserve information. Hearings for an appeal in that matter are scheduled for June 28.

It was partly for legal discovery reasons that EMC National Life Co., in Des Moines started using an e-mail archiving service from Fortiva Inc. "The ability to do legal discovery with their searching capabilities sold us on their product," said Marc Comstock, assistant vice president and technical services manager at EMC National Life. "It's incredibly fast."

The 110-employee life insurance company has been using the Fortiva service only since February and already has 350,000 stored pieces of e-mail. Even so, a full text search takes less than 10 seconds, he said.

Comstock said he was not aware of the new rules, and his organization -- which provides services to independent agents -- could end up running into problems because the agents use a variety of modes of communication -- including Blackberries, instant messaging and Web-based e-mail -- whose content doesn't get captured by a corporate system.

"Eventually, we'll have to find a way to [capture] text messages," he said.

Comstock said he was also impressed by how easily the Fortiva system allowed users to retrieve archived e-mail. "It's incredibly fast," he said. "You hit 'retrieve' and it gives you an option to type [additional] data in and sends it to your in-box within five seconds. Every user has access to their own and can search their own e-mail."

New features in backup and archiving products may make it easier for users to retrieve their own data but could wind up opening corporations up to more legal liability, said Deidre Paknad, CEO of PSS Systems Inc. in Mountain View, Calif.

"If you vend storage and server space, or backup and [restore] equipment, you'd say storing more data is better," said Paknad, whose company sells software to help companies with global retention policies. "Anyone in litigation is going to say that storing less data is always better. Retain what they need to -- nothing more, nothing less."

Additionally, whether data is considered "accessible" is ultimately up to a judge to decide, said Paul Lewis, director of Protiviti Inc., a New York-based risk consultancy.

"It could mean that data on backup tapes, or any data, is 'reasonably accessible,'" he said. "Deleted files are 'reasonably accessible.' We have tools that can get those files back."

In addition to the cost of producing data there are also legal analysis fees, which could be "extremely expensive," Lewis added. But in general, organizations can no longer use cost as an excuse not to produce data.

"That's not going to fly anymore," Lewis said.

The new rules also restrict the ability of one company to define what e-discovery is reasonable, Bace said.

"The big focus is on e-discovery because some organizations have felt it was used like an offensive litigation record," he said. "They come in and their first order is, 'I want all the e-mails from all your employees for the past 10 years.'"

Even organizations that don't currently need to meet with the new rules are starting to take steps to comply with them. "We know that ultimately it'll come to pass that we'll have to be compliant," said Jory Wolf, CIO for the city of  Santa Monica, Calif., which has a population of 93,000.

Wolf said he isn't sure whether he needs to be compliant with the new rules, but he's not taking chances.

"Because we're a public entity, all of our documents except those that are strictly called out as attorney-client are deemed public records," he said. "This means we have to turn over thousands and thousands of e-mails that might be related to the topic because they're an exchange between two people."

To help manage possible e-discovery requests, the city is setting up a document management system using Compulink Management Center Inc.'s Laserfiche document management system and Hewlett-Packard Co.'s Reference Information Storage System (RISS). The goal is to help employees keep track of documents, and get rid of those they don't need, Wolf said.

"The RISS will allow us to set policy where we don't have policies today... and after that they will be automatically destroyed and we'll have proof of the destruction," Wolf said.

To avoid further discovery issues, Wolf has set up new internal rules forbidding the use of instant messaging and Web-based e-mail such as AOL, Yahoo Mail and Google's Gmail. "We have IM turned off. We don't let them use private e-mail," he said.

Organizations need to set up a standard process for how to deal with documents, a process that is transparent and repeatable, said Paknad. "The process needs to be in place, and it needs to work, standard operating procedure, with integrity and with rigor," she said.

For example, an organization should already have its discovery plan in place so it can spend the first 30 days thinking about how it can win the case, not calling in outside counsel to help put together the discovery plan in the first place, she said.

 In fact, many organizations have a legal discovery "czar" on staff so they don't have to hire outside legal counsel. The goal is not just to reduce costs and risks but to help create a regular business process, Paknad said.

Gartner's Bace agreed that "organizations need to look at how implementing records management can help corporate performance. They need to use it to some business advantage, and not just as a business device."

The alternative is costly, Paknad said. Previously, "it didn't cost you tens of millions if you screwed up," she said. "Now it will."

Copyright © 2006 IDG Communications, Inc.

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