Case in point—a central focus of the Martha Stewart trial was that the ‘‘Domestic Diva’’ altered an electronically recorded phone message from her broker, then had her personal assistant restore the message to its original form. Ms. Stewart’s assistant testified she located the original in a back-up file. Had the message not been restored by Ms. Stewart’s assistant, it is likely that the prosecution would have discovered the original message in the back-up file on its own—the ‘‘smoking gun.’’ Could such an e-mail or electronic file be sitting out there on your network?

Imagine being a party in a commercial dispute and receiving document requests demanding production of back-up tapes containing any material relating to the subject litigation, exact copies of all hard drives on desktops, laptops, and notebooks, and exact image copies of relevant diskettes. Are you prepared to respond? Before your company or client becomes the subject of an electronic discovery request (or before you initiate one, since the favor will definitely be returned), you need to know if your company is ready and, if not, how to prepare. This article will address:

The discovery of electronic data is critical in today’s commercial case because a significant number of electronically stored documents are never reduced to print,³ including databases, e-mail, word­processing and presentation files, spreadsheets, CAD/CAM/CAE and graphics, personnel records, policy and procedure manuals, among others.⁴

The discovery of electronic media is governed by Rules 26 and 34 of the Federal Rules of Civil Procedure. Rule 26(a) provides for initial disclosures of ‘‘all documents, data compilations, and tangible things’’ that the disclosing party may use to support its claims or defenses. Rule 34 broadly defines ‘‘documents’’ as including electronic data.⁵

In Michigan state courts, electronic discovery is governed by MCR 2.302, which provides for discovery of ‘‘any matter, not privileged, which is relevant...including... documents or other tangible things...,’’ and MCR 2.310, which provides for the production of documents, including:

After the adoption of the 1970 Amendment to Rule 34, few courts have found authority to rule against the discoverability of information simply because it was stored electronically. Indeed, most courts allow broad electronic discovery, even when it is not expressly requested. For example, in Playboy Enterprises, Inc v Terri Welles,⁶ Playboy sued a former Playmate of the Year for trademark infringement and petitioned the court to grant access to the hard drive of her personal computer to recover deleted e-mail.⁷ The defendant argued the request was defective for failure to specifically mention e-mail or computer hard drive in its text.⁸ The court found that by requesting ‘‘documents,’’ the plaintiff had effectively requested production of information stored in electronic form. The rationale was that any e-mail found in the defendant’s hard drive would have to be produced as a document and therefore e-mail should be construed as documents.⁹ The rest of the plaintiff’s requests were simply discoverable under Rule 34 and Rule 26 and the plaintiff was allowed access to create a mirror image of the defendant’s computer hard drive.¹⁰

Relying on traditional discovery tools of control, courts have afforded protection from abusive requests for electronic discovery. Above and beyond the standard protective order, a court may protect the responding party from ‘‘undue burden or expense’’ by shifting some or all of the costs of production to the requesting party.¹¹ Whether a cost is an undue burden is decided on a case-by-case basis. If the total cost is not substantial, the responding party will likely accept the expense. This leads to the ultimate question: what is a substantial cost and how should the courts quantify an undue burden?

One of the most recent cases on this issue is Zubulake v UBS Warburg LLC,¹² where the court opined that the scope and cost of discovery of electronic data required a three-step analysis.¹³ The first step is to understand the responding party’s computer system with respect to active and stored data. Importantly, the court opined that for ‘‘data kept in an accessible format, the usual rules of discovery apply: the responding party should pay the costs of producing responsive data. Thus, a court should consider cost-shifting only when electronic data is relatively inaccessible, such as in back-up tapes.’’¹⁴

The second step is to determine what data may be found on the inaccessible media, which requires the responsive party to produce a small sample of the requested back-up tapes.¹⁵ The Zubulake court ordered the defendant to produce five back-up tapes as a sample.

The third step in conducting the cost-shifting analysis is to consider the following factors weighted more or less in the following order:

Once it analyzed the sample and applied the above factors, the Zubulake court determined that the cost of restoring and searching any back-up tapes, which cost was estimated to be $273,649.39,¹⁷ should be allocated between the plaintiff (the party requesting the discovery) and the defendant 75 percent and 25 percent, respectively. The court ordered all other costs to be borne exclusively by the defendant.¹⁸

In addition to Zubulake, courts have developed a variety of tests in order to decide cost-shifting. The tests, unlike that in Zubulake, usually favor defendants. For example, in McPeek v Ashcroft, the plaintiff tried to compel the Department of Justice to produce the entirety of its back-up systems to find deleted e-mail. The court struggled with a way to be ‘‘fair’’ to both parties given the breadth of Rule 34 and the constraints of Rule 26.¹⁹ The court likened the plaintiff’s request to, ‘‘[trying to find] an awfully expensive needle to justify searching a haystack.’’²⁰ The court employed a marginal utility philosophy to settle the dispute. It deemed that this approach would place the burden on the plaintiff because it was not likely that it would find anything of value in what was being produced and it was inequitable to the defendant to force it to produce the materials.²¹

Likewise, in Rowe Entertainment, Inc v The William Morris Agency, Inc,²² a group of concert promoters sued several talent agencies for allegedly freezing them out of the market of promoting ­certain events.²³ The plaintiffs moved for production of all documents, including e-mail, concerning any communication between any of the defendants relating to the selection of concert promoters in the course of its business.²⁴ The William Morris agency alone estimated that to fulfill the plaintiffs’ discovery request would cost approximately $9,750,000.²⁵ The court employed an eight-factor balancing test.²⁶ Using this system, the court shifted all costs of production to the plaintiff, save that of the defendants’ search of their own materials for privileged e-mails, finding that although the plaintiff could not obtain the information by other means, the plaintiff’s discovery requests were very broad and the plaintiff had not been able to prove that e-mail discovery would be a ‘‘goldmine’’ of relevant information.²⁷

‘‘As documents are increasingly maintained electronically, it has become easier to delete or tamper with evidence (both intentionally and inadvertently) and more difficult for litigants to craft policies that ensure all relevant documents are preserved.’’²⁸ A duty to preserve arises at the time that litigation was reasonably anticipated.²⁹ Spoliation is ‘‘the destruction or significant alteration of evidence, or the failure to preserve property for another’s use as evidence in pending or reasonably foreseeable litigation.’’

While a party need not preserve all back-up tapes, it has a duty to ‘‘preserve what it knows, or reasonably should know, is relevant in the action, is reasonably calculated to lead to the discovery of admissible evidence, is reasonably likely to be requested during discovery and/or is the subject of a pending discovery request.’’³⁰ This duty extends to those employees likely to have relevant information—‘‘the key players.’’³¹

If a party plans on requesting electronic evidence, it should send a preservation of evidence letter to the responding party at its earliest opportunity.³² The notice should identify the types of information to be preserved. As to a responding party, once litigation is anticipated, a preservation directive should be issued to, and adhered to by, key players. When litigation begins, the requesting party should take the next step and obtain a protective order requiring all parties to preserve electronic evidence.³³

If spoliation occurs, the court may impose sanctions, including reconsideration of cost-shifting, an adverse inference instruction at trial, or a default judgment, among other things. In Crown Life Ins Co v Craig,³⁴ an insurance company that failed to produce electronic data was sanctioned in that it was not allowed to present certain evidence and defenses. In Kucala Enterprises, Ltd v Auto Wax Company, Inc,³⁵ the plaintiff’s case was dismissed and the plaintiff ordered to pay attorney fees and costs after it was determined that the plaintiff used a computer program called ‘‘Evidence Eliminator’’ to delete documents from his computer after litigation had begun ‘‘in wee hours’’ of the morning, just before the defendant’s computer specialist was to take an image of the plaintiff’s computer.

 

There are a number of steps a company can take to manage risk as it relates to electronic discovery and the potential for smoking guns, cost-shifting, and spoliation. Below are some tips for getting your company prepared for the next case.

It is a common misconception that deleting e-mail or documents on your computer destroys them forever. Indeed, the file is lodged in the unallocated space of the hard drive. An examination by a computer forensics team of a bit stream copy of this space will reveal the contents of the document or e-mail.³⁶

If written policies are in place and employees follow the policies, the producing party cannot be vilified for destroying documents in accordance with such retention policies. Therefore, counsel should work with the company’s Information and Technology Department to prepare policies and procedures on how long e-mails are to be retained before being deleted and how long back-up information is going to be stored.

Some experts recommend a policy that requires e-mails to be automatically erased, including back-ups, after a short period of time such as 15–30 days.³⁷ There is software that can be purchased that imposes records retention discipline in that they automatically erase e-mail messages after the defined period of time.

Companies can also create and enforce policies on writing standards as to e-mail. More specifically, a company can provide a feature, such as formal letterhead for certain e-mails, so that they are characterized as an official company record or an official position of the company, as opposed to less formal e-mails that are not intended as official records or positions of the company.³⁸

Organize how electronic information is preserved or hire reputable companies to do it.

Physically segregating the back-up copies of the e-mail system from back-ups of the rest of the computer system will make it easier to respond to discovery requests seeking electronic evidence.³⁹ For example, administrative documentation is placed on a back-up tape separate from correspondence. Or, a company can maintain its e-mail on one computer system or network.

Develop a digital electronic discovery response program.

In a recent survey, more than 80 percent of companies did not have an established protocol for handling electronic discovery requests.⁴⁰ Indeed, most corporate IT departments, while technically capable, are scaled for ongoing operations, and are not prepared to handle discovery of electronic data.⁴¹ A response team should be comprised of individuals from various departments within the organization such as Human Resources, Information and Technology, Administrative, and Legal. The goal should be to incorporate necessary retention requirements with organizational needs to establish not only a retention policy, but in what fashion documents will be stored or organized.

If you receive discovery requests seeking digital evidence, there are a number of steps that should be taken in order to prevent or t least limit discovery, and perhaps shift some or all of the costs.