The Obligations Of Inside And Outside Counsel Regarding Electronic Discovery

Somewhat lost in the proliferation of articles regarding the scope, manner, and cost of electronic discovery, several court opinions and rules have focused on the obligations of inside and outside counsel in this phase of litigation. Failure to understand and fulfill these obligations can result in a critique of the lawyer's performance in a court opinion, severe sanctions for the client, and possible malpractice claims against outside counsel.1 These authorities also create sticky issues about the allocation of responsibility between inside and outside counsel, and how outside counsel can manage the risks of professional liability without making things worse for its clients.

In concept, the obligation to locate and preserve evidence in electronic form is no different than the obligation to do so with respect to hard copies, an obligation with which companies and counsel have lived for decades. However, requests for sanctions for e-discovery violations have increased dramatically, involving fines or a potentially fatal adverse inference instruction. Charges of spoliation - the intentional or negligent destruction of evidence - have overshadowed the merits of some cases and resulted in judgments or settlements that otherwise were unlikely to occur. A number of companies, such as Philip Morris, Rambus, Morgan Stanley, and UBS, have paid a price and received adverse publicity from their shortcomings with electronic discovery. When such adverse outcomes result, attention is likely to be focused on the conduct of the inside and outside lawyers.

Specific Advice In Zubulake V: Implement A Litigation Hold And Identify Relevant Backup Tapes

The most specific guidance on the role of counsel thus far comes from Judge Shira Scheindlin, a member of the Federal Rules Advisory Committee, in the fifth of her landmark opinions in the Zubulake case.2 In Zubulake V, Judge Scheindlin first reiterated that "once a party reasonably anticipates litigation, it must suspend its routine document retention/destruction policy and put in place a "litigation hold" to ensure the preservation of relevant documents." This hold should also apply to backup tapes or other media that are (1) "accessible" (i.e. actively used for information retrieval as compared to those typically maintained solely for the purpose of disaster recovery), or (2) inaccessible, if it can be determined that they contain documents of "key players" in the litigation.

Judge Scheindlin noted, however, that the implementation of a litigation hold is "only the beginning." Next, a party and its counsel "must make certain that all sources of potentially relevant information are identified and placed "on hold." This requires counsel to become "fully familiar" with the client's document retention policies and data retention architecture by speaking with the organization's information technology personnel.

Ensure That Documents Of Key Players Are Retained

Next, Judge Scheindlin instructed that counsel need to communicate with the key players in the litigation in order to understand how they stored information. "Unless counsel interviews each employee, it is impossible to determine whether all potential sources of information have been inspected." She noted that in Zubulake, the failure to consult with one witness resulted in relevant e-mails not being discovered until two years into the litigation. Where the size of the company or scope of the lawsuit prohibits counsel from speaking with every key player, "counsel must be more creative." For example, the court mentioned that it might be possible to run a system-wide key word search, and then preserve a copy of each "hit." The court noted that this process need not be burdensome because "counsel does not have to review these documents, only see that they are retained." It is not sufficient to notify all employees of the litigation hold. "Counsel must take affirmative steps to monitor compliance so that all sources of discoverable information are identified and searched."

Counsel's Duty Is Continuing

Judge Scheindlin next turned to counsel's continuing duty to ensure preservation. Noting that this obligation is tricky in the area of electronic information, Judge Scheindlin concluded that "above all, the requirement must be reasonable. A lawyer cannot be obliged to monitor her client like a parent watching a child. At some point, the client must bear responsibility for a failure to preserve. At the same time, counsel is more conscious of the contours of the preservation obligation; a party cannot reasonably be trusted to receive the litigation hold instruction once and to fully comply with it without the active supervision of counsel."

Judge Scheindlin noted several steps that counsel should take. First, the litigation hold should be periodically reissued so that new employees are aware of it and that it is fresh in the minds of all employees. Second, key players should be periodically reminded that the preservation duty is still in place. Counsel must also make sure that all backup media which the party is required to retain are identified and stored in a safe place.

Counsel's Shortcomings In Zubulake

Judge Scheindlin then turned to the facts of the Zubulake case. Counsel, the court emphasized, is responsible for coordinating the client's discovery efforts. First, Judge Scheindlin concluded that counsel had failed to adequately communicate with one witness about how she stored data. Next, the Judge noted that neither in-house nor outside counsel communicated the litigation hold instructions to another key witness. In the case of another witness, although she had received the litigation hold instruction, no one ever asked her to produce her files. Finally, counsel failed to ensure that certain relevant backup tapes were preserved.

Judge Scheindlin may be out front on this issue. Yet certainly other judges have recently criticized counsel for failing to meet their e-discovery obligations.3 There does seem to be a developing consensus regarding the reasonable obligations of a party regarding electronic discovery, and obviously it is the responsibility of counsel to advise their clients about those obligations.

Court Rules Impose Obligations Too

On September 20, the Judicial Conference approved the recommendation of the Committee on Rules of Practice and Procedure of the United States Courts and its Federal Rules Advisory Committee to amend several of the Rules of Civil Procedure to deal with issues of e-discovery. Next they will be submitted to the Supreme Court for approval, and could take effect in late 2006.4 Among other things, the amendments would require counsel to address early on in the initial Rule 16 conference issues regarding e-discovery, and provide a safe harbor from sanctions under Rule 37 for a party that fails to provide "electronically stored information lost because of the routine operation of the party's computer system."

In the meantime, until the Federal Rules changes take effect, counsel's responsibilities may be impacted by local court rules, standing orders, and individual judge's rules or practices. For example, the Districts of Kansas and New Jersey have enacted rules that require that counsel become knowledgeable about their clients' electronic management systems, that they review their clients' files to ascertain their content, and that they identify the individuals with knowledge of their clients' information systems, prior to the initial Rule 26 conference. In the Districts of Arkansas, the local rules require that counsel file a Rule 26 report which contains the parties' views on electronic discovery, including "the anticipated scope, cost, and time required for disclosure or production of data beyond what is reasonably available to the parties in the ordinary course of business."

Raising The Bar For Outside Counsel

If inside and outside counsel are to work effectively together, they must be cognizant of these developing obligations. Outside counsel are now being told there are certain things they must do in every litigation matter to fulfill their obligations concerning e-discovery, and thereby avoid allegations of malpractice as well as penalties against their client.

Kelley Drye and other law firms are of necessity considering how to protect themselves by memorializing their advice to the client to implement these measures that are being dictated by the courts. Because each company's systems are different, we have developed a checklist of issues to review with each client at an initial meeting to address this topic. The law firms are under pressure from their liability underwriters and risk management counsel to take such action, lest they be criticized for not having given adequate instruction to the client. At the same time, the firms do not want to make matters worse for their clients by memorializing a list of directions that in some cases may be difficult to comply with, thereby making it easier for an adversary to prove culpable destruction of evidence if one or more steps are not taken. It is, however, the courts and legislatures that are telling counsel and their clients what they must do to preserve electronic evidence.

The Role Of Inside Counsel

Many of these evidence preservation tasks can be performed by inside counsel, in some cases more effectively than by outside counsel. Company counsel should be more familiar with the details of the company's IT architecture and document retention policies, the company's past experience with e-discovery and retention, and possibly with some of the key witnesses. Inside counsel will also be able to help evaluate the extent of a litigation hold that is necessary in a particular case, including the need to retain backup media. Most judges recognize the role that inside counsel play, and have criticized their performance in this area when it fell short. But outside counsel will likely be held responsible to ensure that someone performs each required task. Therefore it is incumbent upon both counsel to communicate with each other and agree up front upon their respective roles. For companies that do not have inside counsel, it is highly recommended that a technical liaison be appointed to work with the outside counsel.

1Royall and Vollbrecht, "Avoiding the Scarlet S [for spoliation]," American Lawyer 67 (June 2005); Eisenberg & Solomon, "The Next Chapter: E-discovery's Latest Phase Poses Great Risks for Firms, Clients," N.Y.L.J. (August 23, 2005).

2 Zubulake v. UBS Warburg LLC, No. 02 Civ. 1243 (SAS), 2004 WL 1620866 (S.D.N.Y. July 20, 2004) ("Zubulake V").

3 See, e.g., Metropolitan Opera Assn. v. Local 100, 212 F.R.D. 178, 220-222 (S.D.N.Y. 2003)(counsel never gave adequate instructions about what discovery was required, failed to implement a "systematic procedure" for production or retention of documents, did not instruct the client that electronic files were called for, and made baseless representations about the completeness of the production); Coleman (Parent) Holdings Inc. v. Morgan Stanley & Co., 2005 WL 679071 (Fla.Cir.Ct. March 1, 2005)(granting order for adverse inference instruction), 2005 WL 674885 (Fla.Cir.Ct. March 23, 2005)(granting in part renewed motion for default judgment).

Published October 1, 2005.