E-Discovery Law Review : Electronic Discovery Lawyers & Attorneys : Cozen O'Connor Law Firm : Data Preservation & E-Discovery Disputes

We live in a digital world where smartphones are the norm and email access is seemingly as important as food and water. This increase in usage of email and the amount of electronic data requires companies to develop ways to collect and store a significant amount of data. Inevitably, this data will have to be searched, reviewed, and produced to opposing parties in the event of litigation and often at great cost to the producing party. Fortunately for one plaintiff, however, this is a cost that it will not have to incur.

In I-Med Pharma Inc. v. Biomatrix, Inc., 2011 U.S. Dist. LEXIS 141614 (D. N.J. Dec. 9, 2011), Judge Debevoise was asked to consider whether the plaintiff was required to produce documents from so-called “unallocated space” areas on its computers, namely, the area of the computer where deleted files and temporary data are stored. The parties stipulated that the defendants would hire an expert to conduct a “forensic investigation” and keyword search of the plaintiff’s entire computer system, using over 50 search terms. This search was not limited to specific custodians or time periods and, in the unallocated space alone, the search terms yielded an estimated 65 million “hits,” or 95 million pages of files. In light of this, the Magistrate Judge modified a previous order, which required the plaintiff to produce the results of the forensic investigation and allowed the plaintiff to exclude data from the unallocated space.

In reviewing the Magistrate Judge’s modification, the Court acknowledged the overwhelming burden to the plaintiff if it had to review the documents from the unallocated space. The Court further explained that a “privilege review of 65 million documents is no small undertaking” and that “[e]ven if junior attorneys are engaged, heavily discounted rates are negotiated, and all parties work diligently and efficiently, even a cursory review of that many documents will consume large amounts of attorney time and cost millions of dollars.”

The Court also recognized that the defendants did not show the likelihood that relevant and non-duplicative information was stored in the unallocated space. Additionally, the Court found that the money the defendants spent to obtain the data “pale[d] in comparison” to the cost the plaintiff would incur to review the data.

Finally, the Court addressed the proposed search terms and discussed five factors to consider when analyzing whether those terms were reasonable: “(1) the scope of documents searched and whether the search is restricted to specific computers, file systems, or document custodians; (2) any date restrictions imposed on the search; (3) whether the search terms contain proper names, uncommon abbreviations, or other terms unlikely to occur in irrelevant documents; (4) whether operators such as ‘and’, ‘not’, or ‘near’ are used to restrict the universe of possible results; [and] (5) whether the number of results obtained could be practically reviewed given the economics of the case and the amount of money at issue.” The Court examined all of these factors and stated that although the plaintiff should have “known better than to agree to the search terms . . . the interest of justice and basic fairness are little served by forcing Plaintiff to undertake an enormously expensive privilege review of material that is unlikely to contain non-duplicative evidence.”

The plaintiff in I-Med Pharma Inc. was fortunate in that the Court did not force it to review and produce all of the data in the unallocated space. Not all parties, however, will always be as fortunate. When negotiating with the adverse party regarding the search terms to be utilized for a document production, the following steps may avoid situations similar to those facing the parties in I-Med Pharma Inc.:

·         Know your client’s data system. This may be the most obvious, but most important, advice. To negotiate effectively, you must know certain aspects of the data storage system, such as how much data is contained there, how many potential custodians exist, how long is data retained, and where potentially duplicative data resides.

·         Negotiate for the use of restricting terms. This is especially true with frequently used words. For example, in I-Med Pharma Inc., one of the search terms was the word “return.” Negotiate for the use of search operators, such as “and,” “not,” or “near” in an attempt to further limit your results.

·         Do a sampling first. If possible, run a search with proposed terms to determine what types of “false positives” may result. This will enable the parties to further analyze the negotiated search terms and their effectiveness.

·         Determine relevant time periods and custodians. Limit searches to only those individuals who had a role in the subject matter of the litigation and to only that time period in which relevant documents may exist.

·         Be willing to seek the Court’s assistance. I-Med Pharma demonstrates the efficacy of seeking the Court’s involvement early on to limit the costs associated with e-discovery. When doing so, however, make sure you have done your proverbial homework and are able to educate the Court as to your client’s data systems and what the search proposed by the opposing side truly entails.

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The production of electronically stored information (“ESI”) that has been deleted is potentially very expensive and time consuming. Often outside computer forensics experts are required to assist with the recovery of the deleted data and the routine business of the party is disrupted while resources are allocated to the recovery process. These are now commonplace burdens of parties involved in litigation. Whether these burdens should be placed on a nonparty with relevant ESI was recently addressed by the Appellate Division of the New York Supreme Court. In Tener, M.D. v. Cremer, M.D., et al., 2011 NY Slip Op. 06543, 2011 N.Y. App. Div. LEXIS 6421 (N.Y. App. Div. Sept. 22, 2011), the court, acknowledging that it was charting new territory, addressed for the first time “the obligation of a nonparty to produce electronically stored information (ESI) deleted through normal business operations.” Id. at 2. 

The nonparty was New York University and the computer at issue was located at Bellevue Medical Center. The plaintiff, a doctor, claimed that someone using the NYU computer posted a comment about her on a website known as Vitals.com. The plaintiff served a subpoena on NYU seeking the identity of all persons who had accessed the internet via the subject IP address on the date that the comment was posted. Id.  NYU did not produce any information in response to the subpoena and the plaintiff moved for contempt. NYU claimed that the “computers that simply access the web through NYU’s portal appear as a text file listing that is automatically written over every 30 days.” Id. According to NYU, it lacked the “technological capability or software, if such exists, to retrieve a text file created more than a year ago and written over at least 12 times.” Id. In response, the plaintiff submitted the affidavit of a computer forensics expert who opined that software with the capability to retrieve the deleted data did exist. 

The lower court denied the plaintiff’s contempt motion. It held that NYU did not have the capability to retrieve the deleted data and incorrectly concluded that “this allegation is unrefuted as a reply affidavit contradicting such allegation has not been supplied.” Id. at 3.

On appeal, the Appellate Division reasoned that “ESI is difficult to destroy permanently.” Id. at 4. Rather, “[d]eletion usually only makes the data more difficult to access.” Id. Thus, the “discovery rules contemplate data recovery.” Id. For instance, guidelines developed by the Commercial Division for Supreme Court, Nassau County (the “Guidelines”) “suggest that the parties be prepared to discuss ‘the need for certified forensic specialists and/or experts to assist with the search for and production of ESI.” Id. The Guidelines further explain that “ESI is not to be deemed inaccessible based solely on its source or type of storage media.”  Id. Rather, “[i]naccessibility is based on the burden and expense of recovering and producing the ESI and the relative need for the data.” Id. Thus, the Guidelines advocate a cost-benefit analysis when discovery of deleted ESI is sought.

Adopting the Guidelines’ cost-benefit analysis, the Appellate Division highlighted their similarity to the Federal Rules. Pursuant to Fed. R. Civ. P. 45(d)(1)(D), a nonparty “need not provide discovery of electronically stored information from sources that the person identifies as not reasonably accessible because of undue burden or cost.”   However, the Federal Rules give the federal courts the power to order the production of such information upon a showing of good cause and subject to the limitations of Rule 26(b)(2)(C), which considers, among other things, the burden and expense of production in relation to its likely benefit. Id. at 5.

The Appellate Division further reasoned that exempting inaccessible data from discovery “might encourage quick deletion as a matter of corporate policy, well before the spectre of litigation is on the horizon and the duty to preserve it attaches.” Id. A cost-benefit analysis eliminates the incentive to permanently delete information as a matter of course to protect it from production. Additionally, a cost-benefit analysis gives “the court the flexibility to determine literally whether the discovery is worth the cost and effort of retrieval.” Id. at 6.

The Appellate Division concluded that the plaintiff had demonstrated “good cause” for production of the deleted ESI, which had the potential to identify the person who posted the comment and potentially defamed the plaintiff. Given the showing of “good cause”, the court concluded that a cost-benefit analysis must be undertaken to determine whether the retrieval of the information was warranted. It therefore remanded the case to the lower court because the record did not provide enough information for a proper analysis. Id.

On remand, the Supreme Court was instructed to hold a hearing to determine “(1) whether the identifying information was written over, as NYU maintains, or whether it is somewhere else, such as in unallocated space as a text file; (2) whether the retrieval software plaintiff suggested can actually obtain the data; (3) whether the data will identify the actual person who used the internet on April 12, 2009 via the IP address plaintiff identified; (4) which of those persons accessed Vitals.com and (5) a budget for the cost of the data retrieval, including line item(s) correlating the cost to NYU for the disruption.” Id. The Appellate Division further instructed that the cost-benefit analysis should take into account the fact that NYU is a nonparty. Finally, in the event the Supreme Court determines that the benefits of production outweigh its costs, the court held that the plaintiff should bear the costs.

This decision is noteworthy because it clearly defines the analysis the New York state courts must undertake when determining whether a nonparty is required to expend the time and resources to recover ESI that has been deleted. Upon a showing of good cause, a court will analyze the costs of recovering the information against the need for the deleted information.  The fact that a nonparty is the entity in possession of the deleted data and the one burdened with recovering the data is a factor to be considered by the court.

Under this decision, nonparties served with subpoenas for deleted ESI may not rely on the fact that the data has been deleted in the course of its normal business as a means for avoiding the costs of complying with the subpoena. Instead, the nonparty should undertake an active investigation into whether the data can be retrieved, the difficulty of such retrieval and the concomitant costs.

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 During the last decade, individuals and business have changed the way they manage their data by moving this data management offsite – otherwise known as cloud computing. This differs from the old model of information management that, more or less, mirrored the pre-computing era, meaning that an employee’s file might be kept in a cabinet in a Human Resources (“HR”) office or stored on a company’s in-house server. With cloud computing, however, that same employee file may be stored hundreds or thousands of miles away from the HR officer who needs to review it – or the IT officer tasked with preserving that data for potential litigation. 

Cloud computing outsources data and software management, migrating it from the local to the global by providing instant access over the internet. According to the National Institute of Standards and Technology, cloud computing has five primary characteristics: (1) “on-demand self-service,” or the ability to call up stored data or capabilities as needed; (2) broad network access through a variety of platforms; (3) pooling resources providing “location independence”; (4) “rapid elasticity” in the distribution of computing capabilities, and (5) “measured service,” or service-appropriate control and optimization by the cloud system manager rather than the local user.[1] It is the pooling of resources and the measured service managed by third-parties that pose the greatest risks during e-discovery.

Under the Federal Rules of Civil Procedure, parties must produce copies or descriptions of documents in their possession, custody, or control. By using cloud services, a potential litigant has placed a third-party in the way of important data. That party, however, may not relinquish control over that data and it must be preserved and, possibly, produced. Control of that data could be set forth in the service contract between the cloud provider and the user.[2] Control could also be found because a party has the practical ability to access and obtain the documents from a third-party.[3] As a result, and to avoid a misstep during discovery, clients and counsel need to fully understand the agreements governing important data and the actual technology through which the cloud data is accessed.

Parties employing the cloud are also at risk that certain electronically stored information may be overwritten or subject to routine deletion. Moreover, it may not be technologically or commercially feasible for a cloud service provider to prevent routine maintenance when relevant data is pooled with that of thousands or millions of other users. Without significant guidance on the interplay between cloud computing and any safe harbors for good-faith conduct, potential litigants need to be cautious during discovery to take all reasonable and feasible steps to preserve and produce responsive data. Similarly, litigants and their counsel should remember that discovery should be candid, cooperative, and transparent.[4] Failing to timely disclose or address issues raised by cloud computing may result in sanctions that could have been avoided. 

Cloud computing creates new layers of uncertainty for businesses or individuals who may later be involved in litigation. Although the data may be stored elsewhere, parties will likely have “control” over that which is stored in the cloud and will often bear the same responsibilities with respect to preservation and production as they would for files kept on site. Cloud users should routinely assess their risk by reviewing which data and which services are being migrated to, or are currently in, the cloud. Similarly, cloud computing should be taken seriously from its inception. Parties should conduct their due diligence on potential providers, review agreements and policies, and preempt any risk that saving money now will cause serious costs in court. If litigation arises that may involve cloud data or software, parties should be vigilant in preserving that data and documenting this, and all efforts taken to comply with discovery requests.

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Being a party to litigation often means devoting significant amounts of time and resources to complying with an opposing party’s extensive requests for e-discovery. But is e-discovery compliance a sunk cost? Not necessarily. More and more commonly, federal courts have been willing to allow prevailing parties to recover the costs of certain e-discovery compliance efforts. By carefully documenting the processes and costs necessary to produce responsive electronic data, you provide the court with a solid basis for restitution of those costs. In Race Tires America, Inc. v. Hoosier Racing Tire Corp., No. 07-1294, 2011 U.S. Dist. LEXIS 48847 (W.D. Pa. May 6, 2011), for example, the court reimbursed the successful defendants for over $367,000 in e-discovery costs.

28 U.S.C. § 1920 dictates what costs may be recovered by a prevailing party in federal court. For e-discovery costs, courts tend to focus on Section 1920(4), which allows a court to assess “[f]ees for exemplification and the costs of making copies of any materials where the copies are necessarily obtained for use in the case.” Section 1920(4) was specifically amended by Congress in 2008 to allow the assessment of e-discovery costs, in particular by changing the phrase “copies of papers” to “copies of any materials.” As U.S. District Judge Terrence McVerry noted in the Race Tires case, however, even before the 2008 amendment, “courts in many jurisdictions had come to recognize that ‘exemplification’ in the modern era, includes electronic copying.”

The Race Tires opinion provides a good survey of the types of e-discovery costs that have been assessed against losing parties by federal courts. Examples include costs for electronic scanning, use of a third-party vendor to collect and identify network files, and costs for the conversion of paper documents into electronic files where the parties agreed that responsive documents would be produced in electronic format.

Some courts, by contrast, take a narrower view of Section 1920(4). Some refuse to assess e-discovery costs where the work done by a third-party vendor resembles the work that would be done by paralegals and attorneys in a non-electronic case (and, therefore, would be unrecoverable under Section 1920). Others have found that the scanning of documents is a convenience for counsel, rather than a necessary expense.

Judge McVerry observed that the distinction between non-recoverable and recoverable electronic costs can lie in whether the costs “tend to serve a party’s aesthetic preferences rather than exemplification of evidence.” For example, steps taken to improve the format and design of electronic evidence may be found to merely serve aesthetic preferences, while processes such as scanning and conversion of non-electronic materials are more likely to represent recoverable exemplification costs.

In Race Tires itself, the parties’ mutually agreed-upon discovery plan was crucial to the court’s analysis. The parties agreed to conduct discovery electronically at the outset of the litigation and the plaintiff then “aggressively pursued e-discovery” from the defendants, asserting 119 separate requests for documents and electronically stored information that imposed over 442 search terms. The defendants used third-party vendors to produce the requested electronic documents, and sought to recover those costs after prevailing on summary judgment. The court noted that the vendor costs represented highly technical services, not akin to the work of attorneys or paralegals, and that there was no indication that electronic scanning was used merely for the convenience of the parties or their attorneys. In light of the parties’ agreement and the plaintiff’s discovery requests, “the requirements and expertise necessary to retrieve and prepare [the] e-discovery documents were an indispensable part of the discovery process.”

In order to ultimately recover your e-discovery costs, Race Tires and other federal decision suggest several best practices:

• Agree on an e-discovery plan with the opposing party. This is an excellent way to later establish that your electronic production costs were necessarily incurred.
• Thoroughly document the work done by any vendors or consultants who identify, preserve, and collect your electronic data. Make sure this work is documented separately from the quintessential work of attorneys, such as a review for privilege and responsiveness.
• Be mindful of the distinction between electronic production and electronic enhancement. Essentially, this is a question of “For whom?” Was the cost incurred necessary to give the opposing party what it asked for, or does it serve your own case in some way?

In the end, with a careful approach, your e-discovery costs need not be sunk costs.
 

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