The Role of E-Discovery in Developing Information Governance Policies (United States)

By Jillian Chavis, University of Maryland Law School

OVERVIEW

Companies are collecting, using, and storing electronic information like never before, for purposes ranging from communicating more efficiently to mining data to create business value. As the scope of the regulatory environment increases, and organizations face an increasing number of compliance issues, organizations must take a proactive approach to information governance. Information governance is practicably defined as "the activities and technologies that organizations employ to maximize the value of their information while minimizing associated risks and costs," including the processes, policies, standards, and tools that monitor and manage the critical data of an organization.¹

Although many organizations are developing information governance practices to extract business value from their existing data, they are not simultaneously addressing the potential risks and costs associated with that data, particularly when the data is electronically stored. A prime example of this need for attention to electronically stored information (ESI) is in the realm of e-discovery, which refers to discovery in civil litigation or government investigations regarding information in electronic form. In an increasingly regulated environment, it is crucial that organizations take a proactive approach to information governance to minimize their costs and risks arising from e-discovery.

The Foundation of E-Discovery in Litigation

The importance of e-discovery in litigation gained significant recognition beginning in 2004 with the case of Zubulake v. UBS Warburg LLC.² Zubulake was a seemingly run-of-the-mill employment discrimination case in which Laura Zubulake filed a charge of gender discrimination with the Equal Employment Opportunity Commission on August 16, 2001, after she didn't get a promotion she thought she had earned at Union Bank of Switzerland (UBS) Warburg. The landmark 2004 ruling was the fifth in a series of pretrial decisions in which discovery lasted over two years, as Zubulake sought to sanction UBS for its failure to produce relevant emails. Zubulake firmly established counsel's dual-obligation to ensure that relevant information, including electronically stored information, is preserved by providing clear instructions to the client and properly overseeing the client's compliance with those instructions.

Under Zubulake, counsel's e-discovery obligations are broad in scope and ongoing throughout the litigation process. Suppose, for example, a suit was filed against your client, and you issued a litigation hold at the outset of litigation. You may be surprised to learn that the initial litigation hold may not satisfy your duty of preservation - the litigation hold should be periodically reissued both to make new employees aware of the hold and to remind existing employees that the hold remains in effect. As an example, new employees who may be unaware of the initial litigation hold could unknowingly delete relevant emails, and consequently undermine your duty of preservation. In Zubulake, because UBS failed to preserve the requested emails, counsel was unable to effectively prepare witnesses for depositions, which resulted in inconsistencies between the witness testimonies. The opinion refers to these inconsistencies as "self-executing sanctions," because the responding party's own failure to preserve documents undermined the effectiveness of counsel throughout the discovery process.

To oversee compliance in the discovery process, counsel should emphasize to his client the discovery obligations to ensure that all relevant information is discovered, preserved, and produced. Counsel should not only speak with key players in the litigation, but should also communicate with employees and information technology personnel to identify sources of discoverable information and to ensure that relevant electronic evidence is retained. Zubulake concluded optimistically, noting "[i]t is hoped that counsel will heed the guidance provided by these resources and will work to ensure that preservation, production and spoliation issues are limited, if not eliminated."

In addition to Zubulake, other cases such as Residential Funding Corp. v. DeGeorge Fin. Corp.³ and In re Actos (Pioglitazone) Prods. Liab. Litig.⁴ have established a broad scope and sustained high standards for e-discovery. In Residential Funding Corp the court held that if a party could not produce Electronically Stored Information (ESI) because it was lost or destroyed, the low standard of ordinary negligence was sufficient to order an adverse inference instruction, creating a split with other circuits that apply a gross negligence or bad faith standard. Similarly, In re Actos held that a party had significant continuing preservation obligations from a broad litigation hold it had issued in 2002 because later litigation was "reasonably anticipated." The court applied a permissive adverse inference instruction to information that was lost or destroyed over time, allowing the jury to infer that the lost or destroyed documents would have helped the plaintiffs or hurt the defendants.

E-Discovery in the Federal Rules

Building on the fundamental e-discovery obligations Zubulake outlined in 2004, the Federal Rules of Civil Procedure were amended in 2006 to include ESI. The amended Rules, 33(d) and 34(a)⁵, reflect the recognition that a significant portion of business information is only stored in electronic form, and that parties should have access to that information during discovery. Rule 33(d) discusses the option to produce business records, including ESI, in answer to an interrogatory when "the burden of deriving or ascertaining the answer will be substantially the same for either party," but special difficulties may arise in using ESI compared to information available in physical hardcopy.

Imagine that your client responds to an interrogatory by providing files and information on application software from which the opposing party can ascertain the answer. Has your client satisfied Rule 33(d)? The key question is not whether the answer is ascertainable through the support provided, but whether it is as easily ascertainable for the interrogating party as for the responding party through the support provided. In some cases, the only method for the responding party to satisfy the substantially similar burden test under Rule 33(d) is by providing the interrogating party direct access to its electronic information system. This scenario highlights the importance of information governance in e-discovery, as the responding party must know where sensitive information is electronically stored and, consequently, which systems it can grant the interrogating party access to without violating confidentiality or privacy.

Proposed Changes to E-Discovery

Over the past year, amendments to the Federal Rules of Civil Procedure to address the broad scope of e-discovery have been proposed and revised. The amendments have been approved by the Judicial Conference Committee on Rules of Practice and Procedure and must subsequently be approved by the Judicial Conference before becoming effective. While several amendments have been proposed, the most significant amendment for e-discovery is Rule 37(e).

Rule 37(e) currently provides courts limited discretion in dealing with circumstances in which a party may have failed to properly preserve ESI. The goal of the amendment is to create a national standard of culpability by replacing the vague safe harbor in Current Rule 37(e) with guidelines for actions a court may take in these situations. The most recent proposed amendment reads:

Failure to Preserve Electronically Stored Information. If electronically stored information that should have been preserved in the anticipation or conduct of litigation is lost because a party failed to take reasonable steps to preserve it, and it cannot be restored or replaced through additional discovery, the court may:

 

Information Governance

To execute the discovery process efficiently and effectively, an organization must know what information it has and where it is stored, which highlights the importance of information governance structure for litigation planning purposes. By taking a proactive approach to organizing and managing all information, including its ESI, an organization can reduce costs that may arise from discovery, as well as reduce the risk of sanctions resulting from failing in its obligations in the discovery process, such as the duty of preservation.

In addition to the value information governance can provide during litigation, it is also crucial in preparing for government investigations. Over the past decade, information governance has become increasingly important as the scope of government regulation is expanding, principally in reaction to the frauds and subsequent crashes of corporate giants like Enron and WorldCom. The Sarbanes-Oxley Act of 2002, the most comprehensive federal law regulating corporate governance since the federal securities laws of 1933 and 1934, initiated this new era of government regulation. The Act requires organizations to comply with strict registration, reporting, and auditing requirements, and provides for investigations, suspensions, and sanctions for violations and failures to supervise. In addition to this Act, an increasing number of administrative agencies have enforcement and subpoena power that can initiate investigations against organizations. Under this expanding regulatory regime, it is extremely important for organizations to ensure their information, including ESI, is current and accurate to satisfy reporting requirements, and that it is stored properly for purposes of future audit or inspection.

Organizations should address the very likely risks of litigation and government investigations when developing their information governance policies, specifically regarding ESI. Organizations should prepare for these risks by monitoring and managing information as it is collected, then storing it properly in an easily accessible way to reduce costs during discovery and to ensure compliance with broad e-discovery obligations.

Best Practices

In order to effectively respond to civil litigation or a government investigation, an organization must take a deliberate, preventative approach when developing its information governance structure. The organization should have a system of information governance in place that monitors and manages the discoverable documents under Federal Rule of Civil Procedure 34, as cited above. The organization should develop consistent policies for the retention and systematic arrangement of information, particularly ESI, and those policies should be communicated to all employees and updated on a regular basis. Organizations should accompany their information governance policies with an enforcement policy, which may include warnings, demotions, suspensions, and termination, to facilitate compliance by employees and ultimately reduce the costs during discovery and the risks of sanctions, should civil suits or government investigations arise.

Once litigation has begun, the organization and its counsel must act to preserve the information as soon as they are on notice of its relevance. Counsel should first issue a litigation hold letter to the client, providing sufficient information for the client identifying what documents must be preserved and how to do so. Counsel and client should then take affirmative steps to preserve electronic information that might be mistakenly lost or overwritten by segregating and taking physical custody of items such as thumb drives and backup tapes containing critical information. Next, counsel should immediately evaluate the existing document retention policies to determine what modifications should be made so that appropriate documents will be preserved. Counsel should ensure that the retention policies are followed in practice, because document destruction resulting from noncompliance with retention policies is evidence of bad faith. Counsel should then assess all the systems and software to determine what ESI is preserved under existing procedures.

Throughout the litigation process, counsel and client should apply a reasonableness standard to the client's preservation obligation and counsel's monitoring responsibilities. The client is ultimately responsible for preserving documents, and counsel is responsible for making certain that the client understands the obligation and is conducting a reasonable plan to satisfy it. Additionally, counsel should coordinate with the client's information technology (IT) department throughout the litigation process, as IT personnel will have the best knowledge regarding the operation of the client's document retention policies and the preservation of discoverable information.⁸

Conclusion

Organizations should take a forward-thinking and strategic approach to information governance and develop comprehensive policies for monitoring and managing information, particularly ESI. By organizing and properly storing information so that it is easily accessible, organizations will be prepared for civil litigation and government investigations in an ever-increasing regulatory environment, and they will be able to minimize costs and ensure compliance during discovery.

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Additional RESources

Brian H. Pandya, E-Discovery: Relieving the Burdens of Preservation, METROPOLITAN CORPORATE COUNSEL (Oct. 19, 2013, 1:20PM), http://www.metrocorpcounsel.com/articles/25868/e-discovery-relieving-burdens-preservation.

John G. Schmidt, Jr., and Jennifer A. Beckage, E-Discovery: Avoiding the High Costs of Over-Preservation, METROPOLITAN CORPORATE COUNSEL (Oct. 4, 2011, 1:00AM), http://www.metrocorpcounsel.com/articles/15758/e-discovery-avoiding-high-costs-over-preservation.

Mary Mack, Information Governance: Solving the Problem of Over-Preservation, METROPOLITAN CORPORATE COUNSEL (Mar. 19, 2014, 9:31AM), http://www.metrocorpcounsel.com/articles/28040/information-governance-solving-problem-over-preservation.

Philip N. Yannella, Jason A. Leckerman, and Lindsay D. Breedlove, Proposed Changes to the Civil Rules Could Limit Scope of eDiscovery, BALLARD SPAHR LLP (May 1, 2014), http://www.ballardspahr.com/alertspublications/legalalerts/2014-05-01-proposed-changes-to-civil-rules-could-limit-scope-of-ediscovery.aspx.

Thomas Y. Allman, The 'Package' of Discovery Amendments Released for Public Comment on August 15, 2013.