Feature Article: Electronic Discovery, Remote Storage and Digital Land Mines
	Case Law Updates
	News & Events

Feature Article: Electronic Discovery, Remote Storage and Digital Land Mines

There's a saying that while laws evolve at the speed of government, technology advances at the speed of the Internet. The technological evolution involves the growing availability of remote storage both as a form of backup, and as a place to store any document that a user wants to keep off of a local machine and network.

Moreover, with the advent of "cloud computing" and cloud services aimed at consumers, electronically stored information (ESI) is increasingly distributed and is outside of counsel's immediate control.

Unbeknownst to HR or management, electronically stored information may be retained at many locations other than employee hard drives and company servers. An employee may, for example, go to various search engines, open a free account and upload substantial amounts of material. These documents may be stored on internet servers, which are accessible to the creator and the individuals or entities that the document creator authorizes.

There are many other services that provide Internet-based storage solutions, whether for pure storage or document collaboration. Employees may also plug a portable disk drive into their computer (unless the company's IT staff has taken steps to protect the access ports) and store hundreds of gigabytes of data off of the network. People often do this to avoid policies requiring deletion of e-mail.

Despite contrary instruction, some employees believe that it is in their best interest to store every e-mail and document ever created and move everything into archive files stored on an external storage device (either a physical device or an internet-accessible online repository) before messages are automatically deleted per a company's destruction policy

Unfortunately, most companies have not considered what this technology means in relation to increasingly strict requirements for production of ESI. The Federal Rules of Civil Procedure (FRCP) are predicated on a company knowing where information is stored and the form it is in (for accessibility determinations). This became even more important on December 1, 2006 when the FRCP were amended to reflect the differences between paper and electronic discovery. The fact an officer or employee of an organization chooses—for whatever reason—to store documents in a remote repository does not relieve a duty to produce during the discovery process. But if counsel does not know whether remote storage mechanisms are being used, and what type of documents and e-mail are contained within, serious problems may arise.

Consider the following:

• Counsel receives a discovery request and collects the responsive documents. But counsel does not know that one department arranged � without telling the central IT department � for online backup of user files. Counsel delivers relevant and discoverable on-site ESI and notifies the other party that nothing else exists. In a deposition, the opposing party discovers there are large numbers of responsive documents accessible from a remote storage site via the Internet. Shouldn't counsel expect questions as to the failure of knowing about these repositories?
• Counsel is preparing a discovery request in a case and has reason to believe that there are offline repositories that contain information relevant to the complaint. How does counsel put the other party on notice to include such online repositories � if they in fact exist � in their search for responsive material?
• Counsel is advising the CIO on issues relating to online remote storage. How do counsel and the CIO work toward gaining knowledge of how and when such services and devices are being used by a company or staff?

It is clear that the stakes are enormous. From lawyers who produced responsive e-mails to the federal government that were two years late in the McAfee option backdating suit, to last year's disciplinary action against Qualcomm for its failure to timely produce over 200,000 pages of relevant e-mails, the cost of sanctions imposed by courts against companies that fail to produce electronic evidence can far outweigh the actual costs of litigation.

A vital part of counsel's role in both managing an organization's litigation costs and ensuring compliance with the federal rules when the time comes will be having an e-discovery plan, understanding where the organization's ESI is stored, how it is stored and what the potential is for offline repositories not controlled by the company.

Counsel should work with other internal resources including the Chief Information Officer, Chief Security Officer and Internal Auditor to proactively determine the location of offline or online storage repositories and what the repositories contain. If repositories contain material that should have been destroyed under corporate document retention guidelines (and assuming there is currently no litigation in progress or reasonably imminent that would require preservation of such documents) they should be eliminated. There should also be a requirement to keep the IT department notified of any newly created repositories, even including something as simple as the use of free online storage.

Counsel should also consider written company policies regarding the use of external repositories by employees, as well as evaluate with the IT department how to restrict such use both from a technological (which is never easy), procedural and workflow standpoint.

When discovery requests are pending, counsel should consider the possibility of online or offline repositories in the course of identifying responsive material. It may also be advisable to request written confirmation from those employees whose e-mails and documentation are known to be generally responsive in connection with a request, to certify in writing that they have produced information from all known sources. Anything showing due inquiry can assist in, at the very least, reducing potential sanctions imposed by a court for a surprise production of responsive ESI.

A lack of proactive investigative work regarding the remote location of data can be damaging. Documents that would have been destroyed as a matter of routine destruction practices may not be identified. Therefore, data that might have otherwise been destroyed becomes discoverable.

The options for storing digital information are growing. Counsel has to keep up with these changes. The little USB drive that only a couple of years ago held sixteen thousand characters, the equivalent of less than 10 pages of written text, may now store sixteen billion characters, the equivalent of hundreds of thousand pages of text. The physical size of the USB device is unchanged. However, the storage capacity, and the risk it poses in a world of electronic discovery, has grown at a tremendous rate.

For practitioners, this means that even more diligence is required when identifying and preserving relevant sources of data. If counsel fails to get ahead of this problem, they may well find themselves in the middle of a digital information minefield, attempting to sidestep potential sanctions from angry judges, avoid uncomfortable meetings with CEO�s and audit committees and thwart a litigation disaster.

Case Law Updates

Court Imposes Over $200,000 in Sanctions for Late Production
Keithley v. Homestore.com, Inc., 2009 WL 55953 (N.D.Cal. Jan. 7, 2009). In this ongoing patent infringement litigation, the defendants sought $391,903.51 in additional sanctions. The sanctions sought were based on two categories: costs the defendants incurred in securing production and costs relating to the use of materials produced late. After considering each specific monetary request, the court awarded a total of $205,507.53 to the defendants: $72,281.71 attributable to depositions costs; $11,606.00 for the costs incurred in preparing the documents for deposition; and $428.83 for subpoena costs. The court also ordered the plaintiffs to pay the lodging expenses incurred during the re-depositions.

In-House Impact: Courts are holding parties responsible when they fail to fully comply with production requirements.  Late and/or deficient productions are being met with significant sanctions that include severe monetary penalties, adverse inferences or even a default judgment.

Court Denies Non-Party’s Attempt to “Claw Back” Privileged Documents
SEC v. Badian, 2009 WL 222783 (S.D.N.Y. Jan. 26, 2009). In this securities litigation, a non-party corporation, Rhino, moved to “claw back” approximately 260 privileged documents allegedly produced inadvertently in 2003. Rhino claimed that language accompanying the production, which certified that production of any document shall not be construed as waiver of any privilege, required the SEC to return the documents. To determine whether privilege was waived, the court analyzed the four factors set forth in Lois Sportswear, U.S.A., Inc. v. Levi Strauss & Co. 104 F.R.D. 103, 105 (S.D.N.Y. 1985): (1) reasonableness of the precautions taken to prevent inadvertent disclosure; (2) time taken to rectify the error; (3) extent of the disclosure; and (4) overarching issues of fairness. Factor one weighed in favor of privilege waiver as Rhino presented no evidence of privilege review prior to the production. Factor two weighed in favor of waiver as Rhino waited five years before it sought to "claw back" some of the production. Factor three also weighed in favor of waiver as the court found 260 documents to be a significant number of documents. The last factor also weighed in favor of waiver as the court was unable to find a reason to disregard Rhino's carelessness. With all four factors weighing in favor of privilege waiver, the court concluded that Rhino waived any privilege it may have asserted on the production.

In-House Impact:  Courts look critically at whether claw-backs are appropriate when a non-party produces privileged information, even when the production is accompanied by a disclaimer. Given the widespread damage that can result from the inadvertent production of privileged information, litigation teams must diligently conduct thorough privilege reviews prior to production.

News & Events

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 is written by Gina 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.