Mar 06 2008

E-Discovery — When Information Becomes Evidence

The problem isn't just knowing what to keep, but determining whether there's a smoking gun in your electronically stored information that proves or disproves a case.


Photo: Colin Anderson/Punchstock

Do you know where your electronic records are? It’s time you did. A full year has passed since federal courts changed the rules as to what electronic data — including e-mail and instant messages — can be hauled into court. And that’s given lawyers just enough time to sharpen their skills in the legal practice known as e-discovery.


Since recent amendments to the Federal Rules of Civil Procedure took effect in federal courts, state courts have begun looking at how they treat electronic data during the pretrial exchange of information by lawyers, known as discovery. Nine states recently approved e-discovery provisions, and another 13 states are considering them. The trend could negatively impact unprepared small and midsize businesses. That’s because most of them have become quite adept at storing data — but not at retrieving it.

“We store e-mail on individual backup tapes. If I had to physically hunt down an e-mail on one of those tapes, it’d be a real pain,” says Mark Hargrove, CIO and chief operating officer of Fresh Produce Sportswear in Denver. The clothing maker employs more than 200 workers, including 120 in remote offices who use e-mail heavily. “It would take several days to find a specific message.”

Hargrove understands this better than anyone. He was director of information systems at Silicon Graphics in 1996, when William Lerach targeted the company in a class-action lawsuit for allegedly defrauding shareholders. Lerach, a partner in the law firm of Milberg, Weiss, Bershad, Hynes & Lerach, filed more than 600 class-action suits in the 1990s, many requiring considerable amounts of
e-discovery. Silicon Graphics “spent weeks looking for electronic files,” says Hargrove. The suit was dismissed in May 1996 in U.S. District Court.

With the Silicon Graphics case in mind — and Congress’ passage of the Private Securities Litigation Reform Act of 1995 to reduce frivolous class-action lawsuits — the federal rules governing electronic data were approved by the U.S. Supreme Court and took effect Dec. 1, 2006.

So, which businesses need to be aware of e-discovery? Everyone with a computer, because most documents today begin their life in an electronic form. Although it’s a bigger concern for large companies, e-discovery applies to small businesses as well. The rules are intentionally imprecise, leaving room for the state courts to interpret them. Consider these tips to ensure that your company is protected.

ONE: Create a clear and consistent retention policy.

All businesses need to create and follow strict records-management policies, says Diane Barry, senior managing consultant in the e-discovery practice group of LECG, an expert-services firm in Emeryville, Calif.

The policies need to explain what kinds of records are kept (financial records, e-mail, IMs and blogs); how they will be kept (for example, whether copies of all files are automatically archived); in what format (such as tape backup or paper); when and if they are to be destroyed; and who destroys them.

Businesses also need to decide how long they will keep IT records — for example, logs noting who is accessing which servers.

TWO: Purge files consistent with your set policy.

What records do you need to keep? “There’s no law that says you simply have to keep everything,” says Barry. “There are two reasons to keep files: if you have a business need for it, or if you have a legal need for it,” she says (for example, financial records for tax purposes, or compliance records for regulated industries). Everything else should get tossed during routine purges of electronic files, she says.

“We only keep tapes going back 90 days,” says Fresh Produce’s Hargrove, which is at least a “50 percent conscious decision” because of cost and potential legal vulnerability

Hoarding too many files, whether electronic or paper, carries financial and legal risks. Additionally, data storage per se is inexpensive. But sifting through electronic data is not. That’s one reason legal experts keep as little as possible. But, if litigation should ensue, you’re obligated to halt the destruction of files (see “The Lowdown” column).

THREE: Ensure that archived records are searchable.

The problem is, retaining records for an appropriate amount of time is just one aspect of the challenge. The other — and trickier — part involves searching those records to find the smoking-gun e-mail that could prove or disprove a case.

“Many companies have well-managed systems for business continuity,” explains Jim Barrick, CEO of Control Discovery, a San Francisco firm that specializes in e-discovery services. “Unfortunately, that train comes off the track when they have to retrieve that information. While the task is storage, the goal is retrieval.”

FOUR: Build a topographical map of your electronically stored information.

Before businesses know what to throw out, they need to know what they have. Most don’t. E-discovery case law is filled with examples of companies, large and small, who sabotaged their own defense by not knowing where their data was. Indeed, 30 percent of small companies surveyed by law firm Fulbright & Jaworski in 2007 said so-called “pre-production” efforts accounted for a fifth or more of overall litigation costs.