August 01, 2006

The Federal Rules are playing catch-up on electronic discovery.

After more than five years of study, the United States Judicial Conference’s Advisory Committee on the Federal Rules of Civil Procedure (the “Committee”) has proposed a series of Rule amendments to address some of the characteristics of e-discovery that distinguish it from traditional paper discovery: its enormous volume, its dynamic nature, and the fact that “electronically stored information may be incomprehensible when separated from the system that created it.” Report of the Civil Rules Advisory Committee to the Standing Committee on Rules of Practice and Procedure, Rev. July 25, 2005 (“Committee Report”). The proposed amendments were approved by the Judicial Conference in September 2005. If approved by the Supreme Court by May 1 (and if Congress does not intervene) they will take effect December 1, 2006.

According to the Committee Report, these amendments – like the 2000 amendments - focus on the need to “reduce the costs of discovery, to increase its efficiency, to increase uniformity of practice, and to encourage the judiciary to participate more actively in case management.”

The amendments fall generally into five areas.

Separate Treatment of “Electronically Saved Information”

One of the most basic of the proposed changes is to add “electronically stored information” to the Rule 34(a) list of what is subject to production. By listing electronic information separately from “documents,” the Committee intended to acknowledge the differences between electronic information and the traditional concept of “documents”. During the public comment period, however, some critics warned that lawyers who continue to propound traditional discovery requests for “documents” unwittingly might exclude electronic information from production. In response, the Committee added a Note clarifying that a request for documents should be understood to include electronically stored information unless discovery in the action has clearly distinguished between the two.

A proposed amendment to Rule 34(b) would permit a requesting party to specify the “form or forms” in which electronic information is to be produced – an explicit acknowledgement that the requesting party may ask for different electronic information to be produced in different forms. The responding party may object to the requested form(s), but if it does – or if the requests do not specify a form – its written responses must specify the form in which it will produce its electronic information. If the requests do not specify a form, the producing party must produce the electronic information “in a form or forms in which it is ordinarily maintained or in a form or forms that are reasonably usable.” Unless the court orders (or the parties agree) otherwise, the producing party need not produce the same electronic information in more than one form.

Early Discussion of and Attention To Electronic Discovery

One of the least controversial changes calls for judges and litigants to give early attention to electronic discovery. Amended Rule 16(b) would permit courts to include in their scheduling orders “provisions for disclosure or discovery of electronically stored information,” as well as any agreement between the parties for asserting claims of privilege or work product after documents have been produced.

A proposed amendment to Rule 26(a) would require parties to include electronic information in their initial disclosures, and amended Rule 26(f) would make preservation and disclosure of electronic information a subject of discussion at the Rule 26 discovery planning conference. The Notes exhort parties to attempt to agree on “reasonable preservation steps,” balancing the need to preserve relevant evidence with the need to continue routine critical business operations. They also caution that the amended rules are not intended to suggest that courts should routinely enter preservation orders.

Inadvertent Production of Privileged Documents

The sheer volume of electronic data – combined with the difficulty of reliably (and cost-efficiently) screening it for privilege or work product – means that inadvertent production of protected materials can be a serious risk in e-discovery. A proposed amendment to Rule 26(b)(5) addresses this issue by providing a procedure for a party to assert privilege or work product protection after documents are produced. Under the proposal, a producing party who inadvertently has produced privileged or work product materials may notify the receiving party and state the bases for its asserted privilege. The receiving party must then “promptly return, sequester, or destroy” the documents (and The Advantage of Focus® www.howrey.com 4 any copies) and may promptly submit the information under seal to a court for a ruling on privilege and waiver. The receiving party may not disclose the documents or information to third parties until a court rules on the issue, and if it already had done so prior to receiving notice of the inadvertent production, it must take reasonable steps to retrieve the disclosed documents. Significantly, the amended rule does not address whether the privilege or protection was waived by the production; that determination is made on the specific facts by the court, based on governing legal principles.

Two Tiers of Discovery

A recurring theme in the e-discovery cases is the burden and expense of searching and producing inaccessible electronic data. The answer, as envisioned by the amendments, is two-tiered discovery: Under revised Rule 26(b)(2), a responding party need not provide discovery of electronic information that is not “reasonably accessible because of undue burden or cost.” The responding party would have to identify the sources of potentially responsive information withheld on this ground – but only “by category or type” – and on a motion to compel or motion for a protective order, it will have the burden of showing that the data is not reasonably accessible. The court may order discovery of the inaccessible data for good cause shown, and it also may impose conditions on such discovery, including the familiar condition of allocating the costs of the discovery between the parties.

A Safe Harbor from Sanctions

One of the distinguishing – and potentially problematic – features of electronically stored information is that it frequently is subject to periodic alteration or deletion as a result of the routine operation of an electronic information system. This, in turn, can raise serious sanctions issues. The Committee Report acknowledges that automatic deletion or modification features are “essential to the operation of electronic information systems”; that interrupting or suspending them “can be prohibitively expensive and burdensome”; and that it may be “unrealistic to expect parties to stop such routine operation of their computer systems as soon as they anticipate litigation.” Accordingly, a proposed amendment to Rule 37(f) provides that, absent “exceptional circumstances” a court may not impose sanctions under the Rules where a party has failed to produce electronic information system.”

This provision has a number of important limitations. First, it creates no obligation to preserve documents; it merely addresses the extent to which sanctions can be imposed. Second, the amended rule would affect only sanctions under the Rules; sanctions authorized elsewhere (e.g., in statutes or rules of professional responsibility) would be unaffected. Third, the rule addresses only imposition of “sanctions.” It does not affect a court’s ability to make “the kinds of adjustments frequently used in managing discovery if a party is unable to provide relevant responsive information” – e.g., requiring a responding party to produce additional witnesses for deposition or to respond to additional interrogatories. Fourth, the “good faith” test is not defined in the rule. The Notes suggest that the good faith test means that a party may not “exploit the routine operation of an information system to thwart discovery obligations” and lists, as relevant factors, the party’s efforts to comply with a court preservation order or with an agreement between the parties requiring preservation of specific electronically stored information. Moreover, the Notes make clear that the fact that data destroyed by the routine operation of the computer system was inaccessible is not determinative of good faith. One relevant factor will be whether the party reasonably believes that the electronic information residing in the inaccessible sources is “likely to be discoverable and not available from reasonably accessible sources.”

Finally, the rule does not define “exceptional circumstances.” The Committee Report states simply that this provision “recognizes that in some circumstances a court should provide remedies to protect an entirely innocent party requesting discovery against serious prejudice arising from the loss of potentially important information.”

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The fact that the Advisory Committee took more than five years to promulgate these changes is proof that, as the Committee Report notes, the “tasks of designing discovery rules for an information age are formidable . . . .” Further changes undoubtedly will be necessary as technology continues to evolve and issues crystallize as parties continue to grapple with e-discovery. Whether these proposed changes will lead to greater certainty, lower costs, and less burden in the interim remains to be seen. But these amendments are at least a first step toward a more rational approach to e-discovery.

Martha K. Gooding is a partner in Howrey LLP’s global litigation practice group, where her practice focuses on complex commercial litigation, including trade secret and unfair competition actions, state and federal securities claims, government and self-regulatory investigations, consumer and securities class actions, and employment disputes.