In This Issue:

	Recent ESI Court Decisions
	Practice Points: Managing Corporate Data in an Economic Downturn
	News & Events

Recent ESI Court Decisions

Satisfied with Defendant's Awareness of Its Preservation Obligations, Court Declines to Enter a Preservation Order
Ellington Credit Fund, Ltd. v. Select Portfolio Servs., Inc., 2009 WL 274483 (S.D.N.Y. Feb. 3, 2009). In this breach of contract litigation, the plaintiffs moved to lift a pending discovery stay and sought a preservation order claiming systematic purges of the defendant's computer systems resulted in the destruction of relevant information. The defendant opposed the motion, arguing that a litigation hold was in place and no relevant files had been destroyed. Finding that the defendants were fully aware of their preservation obligations, the court refused to lift the discovery stay and declined to issue a preservation order, noting the plaintiffs failed to propose terms, time frame or scope for any such order.

Court Declines to Shift Costs Related to the Optical Character Recognition (OCR) Process
Proctor & Gamble Co. v. S.C. Johnson & Son, Inc., 2009 WL 440543 (E.D.Tex. Feb. 19, 2009). In this patent infringement litigation, the court considered whether the defendant should be ordered to perform the OCR process on TIFF formatted documents prior to production. The defendant estimated the total cost of OCR to exceed $200,000 and argued for cost-shifting. The plaintiff argued that the defendant's estimate was unsupported and the cost would be closer to three cents per page. Agreeing with the plaintiff, the court ordered the defendant to perform the OCR process. The court determined OCR was not unreasonable or burdensome as it was likely to "streamline the discovery process" and reduce the chance either party would hide relevant information in "a mountain of difficult-to-search documents." Focusing on the potential relevancy of the information sought, the court found the seven Zubulake cost-shifting factors did not favor cost shifting.

Court Declines to Excuse Default Settings That Eliminate E-mail Headers
Brookdale Univ. Hosp. & Med. Ctr., Inc. v. Health Ins. Plan of Greater New York, 2009 WL 393644 (E.D.N.Y. Feb. 13, 2009). In this RICO suit, the defendants sought reconsideration of the court's previous order that directed the defendants to return or destroy the plaintiff's inadvertently produced privileged documents. Stating that it was "closing and locking the door" on future claims of privilege protection, the court determined the time for raising inadvertent disclosure arguments had passed. The defendant also asked the court to order the plaintiff to re-produce e-mails that were previously produced without string headers. Siding with the defendants, the court was not satisfied with the plaintiff's explanation that header information was by default never created and thus not maintained. However, the court stayed the defendant's motion and ordered the parties to attempt to resolve the issue and provide a report to the court.

Courts Issues Adverse Inference Jury Instruction and Warns Future Sanctions will be Harsher
Smith v. Slifer Smith & Frampton/Vail Assocs. Real Estate, LLC, 2009 WL 482603 (D.Colo. Feb. 25, 2009). In this real estate litigation, the defendants objected to the magistrate judge's recommendation regarding the plaintiffs' motion for sanctions for the destruction of evidence. The plaintiffs' expert concluded the defendants engaged in a systemic effort to erase pertinent data based on evidence of wiping software and reformatting. The magistrate judge found the defendants' actions to be willful and in bad faith after the duty to preserve arose. The magistrate judge therefore recommended an adverse inference jury instruction, a monetary award associated with attorneys' fees and costs as well as the costs associated with the forensic examination of the computer files. Finding the recommendation based on substantial evidence, the court adopted the magistrate's recommendation and warned the defendants that any further sanctions would be more severe and may include a default judgment.

Court Sides with Third Party When Denying Motion for Imaging in a "Battle of the Experts"
Mintel Int'l Group, Ltd. v. Neergheen, 2009 WL 249227 (N.D.Ill. Feb. 3, 2009). In this trade secrets and computer fraud litigation, the plaintiff sought a reconsideration of the court's previous ruling denying the plaintiff's fifth request for a mirror image of a third party's computers. The plaintiff alleged the defendant illegally e-mailed the plaintiff's documents to his personal e-mail account before leaving the company. The plaintiff filed this motion based upon "newly discovered evidence" from a forensic analysis of two USB drives produced by the defendant that contained proprietary documents belonging to the plaintiff. Two experts—one each for the plaintiff and third party—analyzed the evidence and presented conflicting testimony regarding whether data was destroyed. In this "battle of the experts," the court determined that the plaintiff did not establish that a wiping program was utilized given the testimony of the third party's expert, which provided a reasonable alternative. Based on the court's unwillingness to violate the privacy interests of the third party, the court denied the plaintiff's motion to reconsider.

Court Dismisses Case Following Intentional Destruction of Essential Data
Kvitka v. Puffin Co., LLC, 2009 WL 385582 (M.D.Pa. Feb. 13, 2009). In this litigation, the plaintiffs filed suit alleging fabricated e-mails wrongly led to an improper ban of its advertisements. In the instant motion, the defendants sought sanctions alleging the plaintiffs intentionally destroyed relevant evidence when discarding a laptop after receiving a preservation letter. Finding the plaintiffs acted in bad faith by discarding the laptop with relevant e-mails and severely prejudiced the defendants' ability to defend against the plaintiffs' claims, the court granted the defendants' spoliation motion and dismissed the plaintiffs' claims with prejudice.

Court Orders Reproduction in Native Format but Shifts Costs to Requesting Party
In re Classicstar Mare Lease Litig., 2009 WL 260954 (E.D.Ky. Feb. 2, 2009). In this litigation, the defendant moved for a protective order after the plaintiffs sought reproduction of financial documents in native format. Previously, the defendant produced 273,000 pages in TIFF format and claimed that reproduction in native format would be extremely difficult and burdensome as some information would need to be redacted and older data could be corrupted. The defendant also argued the first production was in a "reasonably usable format" in compliance with Fed.R.Civ.P 34(b). However, the plaintiffs argued native format would save them "hundreds of hours" and make the data much more usable as it was complex information and extremely reliant on the reporting features within the software. Citing an exchange between the parties in which the defendant agreed to produce material in native format if the plaintiff purchased the software needed to review the documents, the court ordered the defendant to reproduce the data in native format. The court shifted the reasonable cost of copying and delivering the second production to the plaintiff as the defendant had complied with its obligations during the first production.

Court Establishes Protocol for Imaging of Portable Electronic Devices
Cont'l Group, Inc. v. KW Prop. Mgmt., LLC, 2009 WL 425945 (S.D.Fla. Feb. 20, 2009). In this litigation, the plaintiff filed a motion to compel production and discovery compliance. Noting the parties were unable to cooperate regarding the imaging of the portable devices, the court provided further direction. The court set out the following procedure: the plaintiff would image the defendants' portable electronic devices and the defendants would conduct a privilege search and create a privilege log. The court advised that the plaintiff's possession of any privileged information did not constitute a waiver.

To view additional case summaries visit www.krollontrack.com/case-summaries/.

Practice Points: Managing Corporate Data in an Economic Downturn

Today's volatile economic climate challenges corporations to keep a tight rein on expenses and scrutinize costs. As such, many American corporations are restructuring and realigning in an effort to reduce expenses and optimize operational profit. Corporations are forcing themselves to become swifter and leaner while downsizing and minimizing vulnerabilities associated with rapid reorganization.

With more and more information conveyed and stored in electronic form, IT and senior management are grappling with how to implement best practices and procedures to manage company data. While there is no "one size fits all" approach to proper data management, there are steps a corporation and its counsel should take to evade unnecessary litigation and regulatory costs and avoid sanctions. The following steps are designed to empower corporations to address data management challenges and should be tailored to the needs of each organization.

• Step One: Extinguish Fires. Human Resources must work with IT to ensure exiting employees' computer accounts and remote access databases are deactivated immediately. Collect all company-owned electronic devices in a timely manner and collect and review the data on these devices before disposing or recycling them.
• Step Two: Identify and Leverage Resources. Identify individuals within the organization who know where company information is stored. Seek assistance from internal resources that are knowledgeable about the organization's ESI along with consultants who have both legal and technical experience.
• Step Three: Create a Data Inventory. Interview internal experts to determine sources of active and archived data. Catalogue identified sources of ESI in a data inventory, including all storage devices in use, all archived electronic data storage formats and all methods by which data can be transferred to/from the organization.
• Step Four: Classify Records and Useful Life. Organizations should classify records by purpose and "useful life" (i.e., the period for which the document will be relevant to the business needs of the organization). Documents should be destroyed promptly following their useful life.
• Step Five: Determine Retention Periods. Create a record retention policy that dictates how long each class of data should be kept. Identify any statutory or regulatory requirements that require specific retention periods. Absent regulation, the legal standard for retention is generally "reasonableness," considering individual business practices, industry standards and the relevant statute of limitations period.
• Step Six: Determine Retention Procedures. The next step is deciding how data should be maintained or destroyed and by whom. A records retention policy should detail where and how documents should be retained or when documents should be converted to a different format. A document retention policy should also include appointing a records custodian for each department who is responsible for developing and enforcing record management policies within that department.
• Step Seven: Create a Discovery Task Force. An organization should appoint a group of individuals—including corporate counsel, human resources, business line managers, IT and outside counsel—to handle records management issues in the event of a pending or impending litigation. The team should maintain a corporate data directory, including a record of past and present operating systems and software, document retention and back-up rotation procedures and schedules, and contact information for the designated record custodian in each business department.

The weakened economy has placed incredible budgetary pressures on corporations, who must maintain profit margins despite increased litigation and shrunken resources. Despite this fact, electronic data proliferation is economically neutral – it grows exponentially in good times or bad, and the costs to manage ESI continue to increase despite the lack of a corollary budgetary raise. By instituting sound data management practices, corporations will ultimately reduce the costs that result from responding to litigation and regulation. A proactive approach will also decrease the likelihood that responsive data is lost or damaged and that privileged information is inadvertently produced. As courts are becoming less tolerant of parties who fail to properly produce ESI, corporations must take proactive measures to create and enforce corporate ESI protocol.

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News & Events

Ontrack Inview Analysis Module Further Streamlines the E-Discovery Process
The Ontrack^® Inview^™ Analysis Module by Kroll Ontrack is an early case assessment tool that helps legal teams streamline e-discovery by providing early visibility into case data before processing and review begins. Use the Ontrack Inview Analysis Module to: investigate your data using concept searching, topic grouping and additional advanced visualization features; identify potential custodians; and decrease the size of your document set by including only the most relevant documents. This service will help you gain control over the e-discovery process and significantly reduce the time and expense associated with e-discovery and litigation. For more information, please visit www.krollontrack.com/news-releases/?getPressRelease=61229.

Enhanced E-Discovery Certification Course Propels Litigation Teams to New Heights
Given the current economic condition, corporate clients are being forced to cut back legal and IT budgets, while the threat of sanctions due to improper ESI handling continues to rise. Become e-discovery certified to prevent your firm or corporation from becoming the next headline. Kroll Ontrack's 2009 E-Discovery Certification Course is ideal for legal and technical professionals of all levels, especially in-house counsel, law firm attorneys, litigation support professionals, paralegals, IT staff and members of the judiciary. Upon completion of this program, you will be able to make informed decisions regarding ESI, be prepared to negotiate at the meet and confer and understand the most current e-discovery law. For more information and to register for an upcoming course, visit www.krollontrack.com/certification-courses/.

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This newsletter was written by Regina Jytyla and Joni Shogren, Kroll Ontrack staff attorneys, with assistance from Kelly Kubacki and Meridith Socha, Kroll Ontrack law clerks. Ms. Shogren can be contacted by writing to jshogren@krollontrack.com.

For more information about electronic discovery and computer forensics services, contact Kroll Ontrack at 800 347 6105 or visit www.krollontrack.com.