CORPORATE TRACK

From Cyberlaw

Isom, Digital Discovery Primer
Credit Suisse Workshop Paper
BIG BANK Case Study

• both individual and institutional
• Think where we’ve come institutionally. 50 years ago, companies kept their records on massive amounts of paper, that cost huge amounts to store. There were records management units in corporations, whose entire function was managing this information track.
• Think where we are now. What do a company’s records look like at this point? Companies retain vast amounts of digital data.
• Think about the multiplicity of forms and modes of storage for digital information.
  • Compare this to the track that we as individuals lay down (though we also lay down all that other information).
• We went through a period during the change to digital when the old records management types started to look quite irrelevant. Now the tech department was king. Different culture, not top down organized.
  • You wind up with a structure that’s not top down hierarchical, but rather, much more organic.

Contents 1 Big Bank 2 Spoliation 2.1 Fen Phen 3 The Rules 4 Company Policy 5 Back to Big Bank 6 Stepping Back 7 Questions? 8 Links

Big Bank

• Imagine a foreign bank during this transition period. If you take a time flow up through about 2000, the bank is dabbling in getting into the digital environment. Then the bank starts to shift over its core transactions to digital, but still is maintaining parallel paper records for many things. How would you advise this bank? They’re thinking of adopting a centralized digital management system. They’re concerned about their materials and customers.
• How do you sort what you keep from what you get rid of?
  • In the old paper records days, that resulted in the development of careful practices, reduced to policy and lawyered, about how recoreds were to be kept.
  • But the questions of what to destroy and what to keep bump up against the law
  • Can a company destroy a document? Yes. If you own a document, you can do what you want with it.
• Under what circumstances does a document create a character where destroying it creates a legal problem?
• DC bar committee: “the test is whether the document destruction is directed at concerte litigation, either pending or almost certain to be filed. The needs for certainty as to when the rule applies and for flexibility of action by the lawyer dictate that the rule’s application be thus confined.
• You represent a lawnmower company. Someone gets badly injured. In the course of discovery, you find a document that will kill you in litigation.
  • Do you shred? No.
  • That document has now become invested with something. It is evidence in a pending suit.
  • So what do you do ? options: (1) settle; (2) advise client of how damaging the document is, and if it disappears… what is the risk? Is your lawyer going to testify? Are you likely to be caught?
  • Now the lawyer has settled the case. This P goes away. But the lawyer realizes that this defect still exists. Now the document is in hand, and there’s no pending litigation. Can the lawyer advise the client that he may treat the document just like any other?
    • Answer from: DC bar committee: “the test is whether the document destruction is directed at concrete litigation, either pending or almost certain to be filed. The needs for certainty as to when the rule applies and for flexibility of action by the lawyer dictate that the rule’s application be thus confined.
    • What is “flexibility of action by the lawyer”?

Spoliation

• When N first started teaching evidence, he wondered what counts as obstruction of justice. The law at that time was based on an idea of property; that document belongs to you. But when the process of law imposes some change on the document (like subpoena), then the status of the document changes. That was the line.
  • This has now changed, after Watergate. That’s where “imminent” comes in.
  • But the basis ‘status’ idea is still around.
• But just because you’ve obeyed the law, you’re not necessarily home free. If you’ve subpoenaed the document and the other side has destroyed it, that’s known as Spoliation,, and that itself becomes an evidentiary fact, from which a trier of fact can draw a conclusion.
  • A judge evolved doctrine.
  • It’s possible for the judge to keep that as a contempt, or could permit the jury to draw an inference from the fact of it. it acts like an admission from the party opponent, like running from the crime.
    • If it’s strong enough, the judge can draw that inference and preclude that issue.
• But recognize that this is a structure that exists in a real world of litigation, where discovery starts as a low level process, managed by assistants.
  • If you get caught by the opposing party not producing something. It’s likely that you say, we’ve made a mistake, here’s a document, and the magistrate will proceed (not looking for a fight). So there’s not much of a sanction for taking the chance of withholding a document. lawyers will be lawyers
  • Likewise, if it's discovered after the trial that the document was there, your chances of getting a new trial are very low. The rules of closure shut you down pretty fast. 10 days without fraud, a year with fraud.
• The time when it's dangerous to be caught cheating is when there's a jury sitting. That's when the judge allows you to make a trial issue of the spoliation.

Fen Phen

• in the discovery against the drug companies, the P's lawyer went through a 2 year process of digging and finding documents. But he also found that documents were missing.
• Won the biggest judgment ever in MA. That provided the base for the national class action lawyers who played off of this discovery. That was a big hit for the plaintiff's bar.
• You can see the power of document destruction in front of the jury. This is human; juries can understand this .
• Do not argue in your opening statment

The Rules

• FRCP 26(a)(1)(B); discovery extends to docs in the "possession, custody or control o the party"
• FRCP 26(b)(2)(i): discmay be limited if "the discovery sought is unreasonably cumulative or duplicative, ro is obtainable from some other sources
• FRCP 26(b)(2)(iii): and if the burden outweighs the benefit (balancing test), may limit it
• If you're exposed to American courts, you face a super threatening discovery system. Any doc under your control, unless privileged
• Preservation
  • Statutory and regulatory requirements
  • Criminal to destroy a doc with intent to impair its availabilitiy for use in the proceeding;
  • Unethical to destroy docs known to be potential evidence in pending or imminent litigation
• So we have rules made for the analog era, in era where docs are preserved digitally.

Company Policy

• How would you craft a program for a company that wants to get rid of as much as possible without worrying about Spoliation?
  • could go through the case law and see where the line is drawn for every kind of document and then destroy as much as possible
  • this solves the spoliation problem since the spoliation inference depends on being able to draw an inference that the docs were destroyed for the purpose of evading a particular claim.
  • If there's a general policy of destruction, then you can't draw that inference.
• Document Retention Programs
  • presumptive limits on retention of emails that are not business records
  • recycle time on back-up tapes
  • notification and preservation measures for pending litigation
  • preservation of evidence for potential litigation
  • establishment of system and training of personnel
• The company finds it increasingly difficult to respond to discovery and preservation orders since it doesn't know what it's got and it doesn't have control over its system.

Back to Big Bank

• Think about Fen Fen. D atty requests an order for preservation. The company gets the preservation order.
• How should Big Bank handle the preservation order?
• Is an old deleted email recoverable?
  • It probably still exists on the server that sent it.
  • The IT department will run routine tape back-ups.
    • Whereas in the paper world, the people running the show wanted to destroy things, in the modern world, the culture is totally different; IT departments grew up living in fear of a crash. They don’t want to lose anything.
    • IT culture vs. lawyer culture
  • The IT dept started backing up in 1968, on machines that don’t exist anymore, stored in places that no one has indexed.
    • Discoverable, but inaccessible
    • One response to the order; just hand in the whole thing
  • There's so much information; how do you search it?
    • One advantage of digital information storage is that there are programs that make it easy to search them.
    • But what we're talking about is tapes in warehouses of information recorded with mystery software on mystery hardware that hasn't been digitized. You'd have to put back online all that information in order to use those techniques.
    • Spectrum from online ---- to slightly online ---- to obscure material
  • Discovery isn't limited to original documents or admissible evidence. It's anything that could lead to admissible evidence.
• Send out a general order to halt all destruction in the company
  • What happens when 40,000 people in the company hear about that?
  • But if something gets destroyed in the week while you figure everything out, you're in trouble
    • There are so many copies of docs out there that one bit of destruction isn't going to be a threat
    • But the problem isn't if something is actually destroyed, but if it looks like someone tried to do so.
    • Companies see this problem as totally huge. The organization doesn't permit an automatic response to this kind of order. You would need huge amounts of training.
• Perhaps the Bank should hire a company to come in and restructure the way it handles its information.

o So long as the costs of discovery are borne by the producing company, then it would be cheaper for them to use such a system.

Stepping Back

• Here's what has happened: Companies receive these requests and find it's expensive to comply. The general counsels get together and stress about it. They say, we need the rules changed. The plaintiffs shouldn't be able to impose this expense; it's now a huge litigation weapon. Increases the likelihood of settlement at an earlier stage.
• So you receive the request. You now go before the judge and explain how expensive compliance will be, and claim fishing expidition. You ask for P's to share the cost.
  • Response: the company is claiming that its own inefficiency should be a plaintiff's cost. It's up to them to keep their information in sensible fashion.
  • This has evolved into a structure that recognizes the different layers of accessibility, and gives judges discretion to shift costs in situations where the odds of finding things are low, difficulty of access is high, reasonableness that things are inaccessible is high, etc.
• Now consider the problem as a whole. You're looking at a need to get your information in control. Dangerous not to produce, hugely expensive to produce
  • the olden days of paper produced a tiny percent of information in comparison with now.
• When digital information goes online, you can do efficient search, but one problem doesn't go away: after you've found all responsible docs, do you just give them to P's, or do you review them for privilege?
  • Most litigators feel uneasy about giving docs away that they haven't looked at. If you voluntarily disclose, you waive privilege.
  • So now we need an army of lawyers. That's a non scaleable cost.
• Does it make sense to try and destroy information at all? Would it make sense for companies to retain everything? Does the digital environment allow us to approach truth in a new way?

Questions?

• are there different rules for criminal and civil? Not in the corporate context. The govt has gotten very sophisticated in the use of its power to demand information from companies.
• Could you say more about why the Swiss banks decided they were better off having information?
  • They haven't actually decided that. But it has become a consideration.
  • N went to a conference with them, and was impressed by how directly they are facing these issues.
  • The other major concern was affiliates.
    • You can put your data in Sealand, but that doesn't insulate it from discovery if someone who controls access to it is within a court's jurisdiction. How do you structure a company in a way that has both far flung facilities around the world and yet have control of all your data limited to one jurisdiction. It doesn’t work.

Links

Sedona Principles Sedona Background