Practical implications of the electronic discovery-related Federal Rules of Civil Procedure amendments

Issue Vol. 9 No. 3 January 2007 By Grace Bacon Garcia, Esq., and Kenneth V. Nourse, Esq.

While the recent Federal Rules of Civil Procedure amendments concerning electronic discovery have not changed what constitutes electronic evidence best practices, the mandatory early examination of electronic discovery-related issues in federal litigation raises several new considerations. The following are three examples of issues to which practitioners should give some attention early in the case.

I. Be proactive with your clients
Even before your client is under a duty to preserve documents as the result of either litigation or an investigation, outside counsel should reach out proactively to clients to determine what the client’s document retention policy is and how that policy is actually implemented in practice. Be aware that, more often than not, a discrepancy exists between the policy as written and as technically implemented. Because of this discrepancy, e-mails, files stored on file shares, and loose files and archived e-mails stored on employees’ laptops and desktops persist despite having a creation date well beyond the official retention period.

This, of course, leads to electronically stored information (ESI) that should have been destroyed in compliance with the retention policy having to be preserved and ultimately produced if relevant and not privileged. It is not uncommon, for example, for companies that employ a third-party, offsite, Internet-based e-mail archiving solution to rely unknowingly on that third-party’s default retention period, which is often not in synch with the company’s. Consequently, counsel need to work with their clients to ensure that the document retention policy is in fact being followed in order to avoid additional costs and time when litigation arises.

In the absence of a retention policy, counsel should encourage and facilitate the creation and implementation of one. Failing that, counsel would serve a client well to at least learn how that client determines what electronic information is retained and how decisions are made to discard that information. Of course, the entire point of these efforts is to ensure that your client has on hand only as much ESI as is necessary for business purposes.

II. Removal considerations
When a case is filed in state court, one early decision a defendant makes is whether to remove the case to federal court. After determining whether the case meets the jurisdictional requirements, there are several other factors considered in deciding to remove. For instance, a decision to remove may be made based on a belief that a federal court judge may be better able to handle your case, or decide a dispositive motion. Removal also may be made if an attorney believes he or she would obtain a more conservative jury in federal court than in the state court. Also, one may remove if one believes that the Federal Rules of Procedure will benefit their client in the progress of the case. Attorneys have always assessed what rules of procedure — the state or federal — would be more advantageous to their client in deciding whether to remove a case from state to federal court. Now that the Rules of Civil Procedure have been amended, however, this determination may be more critical as the amendments place clear burdens on parties and their counsel.

Some state courts, such as Texas, have already promulgated rules that include ESI discovery issues. See, e.g., Tex. R. Civ. P. 193.3 and 196.4. Other states have not adopted any new rules that specifically address ESI. Regardless, in August 2006, the Conference of Chief Justices approved Guidelines for State Trial Courts Regarding Discovery of Electronically-Stored Information. These guidelines, which were disseminated to all state trial courts, “are intended to help reduce uncertainty in state court litigation by assisting trial judges faced by a dispute over e-discovery in identifying the issues and determining the decision-making factors to be applied.” Although the guidelines are quite similar to the federal amendments, the difference is that the guidelines are not rules and thus, unlike the federal amendments, cannot be counted on to be followed in each case.

Whether the case is in state or federal court, parties have clear discovery and preservation obligations, and the issues of spoliation are the same. However, the way in which the rules, guidelines (if implemented) and case law handle these obligations may give counsel significant considerations in deciding whether to remove a case from state to federal court.

As a result, ESI issues may be handled quite differently in state court than in federal court. The federal rules can be very onerous on parties and their counsel. Depending on the state court, the court may not place the same burdens on parties. Counsel needs to find out whether the particular state court is following the guidelines on a routine basis, or if they are simply treating ESI in the same fashion as all other discovery. Thus, in deciding whether to remove, attorneys should assess which court, the state or federal, will be more receptive to arguments for cost shifting or for limiting discovery.

 Additionally, if the state court does not require automatic disclosures, and if the client is not quite up-to-date with respect to ESI, it may be better to stay in state court, to avoid the federal automatic disclosures of ESI and give both counsel and the client more time to assess, gather, review and produce the necessary information.

As stated above, the implantation of the rule amendments makes this a good time to get in touch with your clients, if you have not already, to learn about their document retention policy and determine if they are in fact following their policy. Determining whether your client is on the ball with ESI issues, or whether your client needs more time to properly deal with such issues, is important to your assessment of whether to remove a case to federal court.

III. Settlement considerations
An early assessment of a client’s ESI facilitates a better grasp of the client’s settlement position as well. Before the amendments, counsel usually would not delve into the specifics of what ESI the client may have on hand until discovery had already begun. This, however, has changed. An upfront inventory of a client’s ESI in preparation for the Rule 16 meet and confer allows for more accurate estimates of costs associated with the collection, filtering, processing, review and production of ESI. Prior to the amendments, often these costs were not fully understood when counsel and client waited until discovery was underway to face the issue. On many occasions, counsel and client were surprised well into the game to learn of the sheer volume of potentially relevant ESI for review and ultimate production. Thus, the new amendments require parties to think about these costs at the start of litigation.

In addition to the direct costs, clients may be faced with the necessity of paying a significant retainer to hire a reputable company to deal with all or some of the collection, processing and hosting of ESI for review. The assessment of the ESI-related cost is germane, first, to assessing the client’s settlement strategy and position, and second, to calculating an accurate settlement offer if and when figures were discussed. This consideration allows counsel and client to operate with more complete information in settlement negotiations.

For example, knowing the extent and nature of a client’s ESI and costs associated with handling that ESI may lead to a settlement offer augmented by $25,000 to stave off potential ESI-related costs of $50,000. The early assessment of costs is critical to all parties who may have to pay these ESI discovery costs up front. Accordingly, in order to make better economic decisions regarding a case, settlement options should be thoroughly assessed early on, based on the cost of litigation, which may be significantly increased due to ESI.