Judicial Council proposes new electronic discovery rules

By Nancy McCarthy
Staff Writer

In a world where more than 93 percent of all communications are digital and electronic discovery has driven up the costs of litigation, the California Judicial Council is proposing new statutes and rules that address production of electronically stored information. The proposals drew about 50 comments.

“It seemed it was timely to begin to develop clear rules,” said Patrick O’Donnell, counsel to the Judicial Council’s Civil and Small Claims Advisory Committee who is overseeing the proposals. “We’re providing a framework that addresses the context of a world where most information is stored electronically and a discovery procedure that reflects and addresses that.”

The committee will likely revise the proposals based on the public comment and new rules are expected to take effect early next year.

New federal e-discovery rules took effect in December 2006, and state court rules were to be amended a month later. But the changes were shelved after committee members decided a more comprehensive approach was in order, O’Donnell said.

Rick Seabolt, a partner with Duane Morris LLP in San Francisco and former chair of the State Bar Litigation Section, said the delay gave some lawyers the message that “California doesn’t take e-discovery very seriously,” a message he called counterproductive. In comments he sent to the Judicial Council committee, Seabolt noted, “this is not the time to let ‘the perfect get in the way of the good.’”

Nonetheless, Seabolt said the proposals mirror the federal rules fairly closely and should not be controversial.

He told the committee he has two concerns, the first involving the inadvertent production of privileged information. Seabolt said the requirement that the party receiving the information must move to address the problem puts the burden in the wrong place. “Given the volume of production, particularly with e-discovery, things slip through the cracks,” Seabolt acknowledged. “But it seems to me the burden of bringing the motion should be on the producing party” which has an obligation to review documents thoroughly before they are produced, he said.

Second, he believes a safe harbor provision may lead some lawyers to become somewhat less vigilant about their obligations than they should be. The rule can be read as providing protection from sanctions as long as the lawyers or clients do routine maintenance of electronic data and operate in good faith. That “can become a trap for the unwary,” Seabolt said, adding that as soon as a client is sued, lawyers have an obligation to put in place a “litigation hold” to preserve electronic information that may be subject to discovery.

Other lawyers have expressed concern over a proposal dealing with the production of inaccessible data, such as backup tapes, handheld devices or information stored on obsolete hardware. The federal rules offer a two-tiered approach in which parties are not required to perform an initial search of inaccessible information. The party requesting the information must obtain leave of the court.

The California proposal requires a responding party to seek a protective order to avoid producing information on the grounds that it is inaccessible or unreasonably burdensome to obtain.

Some observers in the blogosphere believe that proposal has the potential for mass requests for protective orders, will drive litigants from state court into federal court, escalate litigation costs and upset the balanced approach offered by the federal rules. Jerone English, the co-chair of Pillsbury Winthrop Shaw Pittman’s electronic specialty team, suggested a scenario in which text messages sent on phones would be requested. “I don’t know an easy way to extract text messages from phones. I may not think of it when we do an early (meet and confer), but when it comes time to respond, I may now have to preserve and produce that information. Do I have to file for a protective order?”

So far, in most cases involving the federal rules, English said the demand for inaccessible information has produced few fights. Most of the time, active data is more relevant, he said.

Worries about thousands of requests for protective orders are exaggerated, English believes. “We think (the proposal) will increase the amount of motion practice because there’s so much material that’s inaccessible,” he said. But a better response would be effective early meetings among counsel where the scope of discovery — and limits on what should be produced — can be established.

Irrespective of the new rules, the issues surrounding electronically stored information (ESI) have become magnified since the invention of the computer and the explosion of e-mail. Seabolt provided these statistics: The average American businessperson receives between 50 and 150 e-mails daily. Data is created at a rate of about five exabytes (a billion gigabytes) per year. That equals nearly one gigabyte — the equivalent of 35 feet of books — for every man, woman and child in the world.

In addition to the enormous volume of ESI, its very nature presents a variety of issues. It’s difficult to delete, it can be replicated in different places where it can be reasonably found, and because it is dynamic, it can be changed and modified. Many records, such as databases, change constantly, English explained.

All these factors require attorneys to “think more broadly,” he said. But “most people treat electronically stored information as if it is not as complicated and sophisticated as it is. They believe it can be treated the same way as paper.”

Several major cases in recent years highlight the perils of electronic discovery gone wrong and illustrate the risks of failing to have in place document preservation procedures and litigation hold policies:

• In a cost-shifting case, the California Court of Appeal ruled in Toshiba American Electronic Components Inc. v. Superior Court (Lexar Media) that the party seeking the production of data from computer backup tapes must bear the reasonable costs of retrieval and production. In that case, the costs amounted to nearly $2 million.
• A federal sex discrimination case in New York, Zubulake v. UBS Warburg LLC, ended in a $29.3 million verdict for the plaintiff after the judge issued five separate opinions on a range of electronic discovery issues. UBS was sanctioned for destroying relevant e-mails during the litigation, and the court allowed the plaintiff to pursue additional discovery and issued a jury instruction permitting a negative inference to be drawn from the missing evidence.
• Morgan Stanley was ordered to pay $1.57 billion for failing to identify and produce records from backup tapes in litigation with investor Ronald Perelman. Morgan Stanley claimed it did not have e-mail records for a particular time period, then later said it had the records but it would cost hundreds of thousands of dollars and several months to locate them. This assertion turned out to be false, and the judge issued a default judgment designed to penalize the firm for concealing evidence. The award was overturned by an appeals court, but Perelman is appealing.
• Microsoft, sued by z4 Technologies for patent infringement, was ordered by a federal judge in Texas to pay enhanced damages of $25 million plus almost $2 million in attorneys fees for, among other things, failing to produce a key e-mail on a timely basis during discovery and failing to disclose the existence of a database.

The California proposals consist of amendments to two case management rules of court and amendments to the state Civil Discovery Act. The latter requires approval by the legislature. They can be found at courtinfo.ca.gov/invitationstocomment/documents/w08-01.pdf. Six other states also are considering the adoption of e-discovery court rules.