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Archive for the ‘Duty to Conduct a Reasonable Inquiry’ Category

Investigating the client’s data enterprise

Posted by rjbiii on October 14, 2007

The third installment in our “Effectively Managing E-Discovery” series.

The process of determining those documents needing to be produced may only begin once it has been found and identified. What are the obligations with respect to conducting an investigation of the responding party’s data enterprise of the party and counsel?

To begin with, counsel does not relieve his obligation by a mere request to his client, but must actually engage in a search for information. Phoenix Four, Inc., 2006 WL 1409413, at *5 (“Counsel’s obligation is not confined to a request for documents; the duty is to search for sources of information.”). “Counsel has the duty to properly communicate with its client to ensure that ‘all sources of relevant information [are] discovered.’” Id. (citing Zubulake V). The court in Phoenix Four, Inc. emphasized that under new Rule 26, the duty does not entail extracting information from sources to which access is difficult, but “rather to ascertain whether any information is stored there.” Phoenix Four, Inc., 2006 WL 1409413, at *6. In order to accomplish this, counsel “should become fully familiar with its client’s document retention policies, as well as its client’s data retention architecture.” FN1. There are strong indications that counsel should not attempt to do this on his own, unless already endowed with a particularly strong level of technical expertise. Even then, it might be advisable to retain an expert possessing easily proven credentials and who might be seen as being somewhat objective.

FN1:Id. at *5 (citing Zubulake V). See also, Guidelines for State Trial Courts Regarding Discovery of Electronically-Stored Information, Conference of Chief Judges (Rev. Draft, Sept. 2005) (stating “[i]n any case in which an issue regarding the discovery of electronically-stored information is raised or is likely to be raised, the court should encourage counsel to become knowledgeable about their client’s information management systems and their operation, including how information is stored and retrieved.” The report continued: “[w]hile the manner in which this encouragement should be given will, of necessity, depend on the procedures and practices of a particular jurisdiction, the court should establish the expectation early that counsel must be well informed about their clients’ electronic records.”); U.S. District Courts (Kan.) Guidelines for Discovery of Electronically Stored Information (“Prior to the Fed. R. Civ. P. 26(f) conference, counsel should become knowledgeable about their clients’ information systems and their operation, including how information is stored and retrieved. In addition, counsel should make a reasonable attempt to review their clients’ electronically stored information to ascertain the contents, including archival, backup, and legacy data (outdated formats or media”).

The court in Peskoff v. Faber, 240 F.R.D. 26 (D.D.C. 2007) illustrated the point, when it ordered:

The [responding party] must therefore conduct a search of all depositories of electronic information in which one may reasonably expect to find all emails to Peskoff, from Peskoff, or in which the word “Peskoff” appears. Once the search is completed, [responding party] must make the results available to [requesting party] in the same format as the electronically stored information was previously The [responding party] must therefore conduct a search of all depositories of electronic information in which one may reasonably expect to find all emails to Peskoff, from Peskoff, or in which the word “Peskoff” appears. Once the search is completed, [responding party] must make the results available to [requesting party] in the same format as the electronically stored information was previously made available. [The responding party] must also file a statement under oath by the person who conducts the search, explaining how the search was conducted, of which electronic depositories, and how it was designed to produce and did in fact produce all of the emails I have just described. I must insist that the person performing the search have the competence and skill to do so comprehensively. An evidentiary hearing will then be held, at which I expect the person who made the attestation to testify and explain how he or she conducted the search, his or her qualifications to conduct the search, and why I should find the search was adequate.

Peskoff v. Faber, 240 F.R.D. 26, 31 (D.D.C. 2007).

More and more, courts expect counsel and their technical team to engage in a process that can be defended if challenged. FN2. The court’s scrutiny will likely focus on two factors: counsel’s selection of technical vendors; and the process used by counsel and its technical team to identify, harvest and process data. Id. One industry expert sees Phoenix Four, Inc., and similar cases, not only as “a mandate to engage experts,” but also an “obligation to select capable ones.” Worst Case, supra FN2 (quoting Michael Arkfeld). An attorney does not relieve himself of responsibility once he has turned engaged an expert, because “[i]t is ultimately counsel’s duty to preserve and gather discoverable ESI.” Worst Case, supra FN2 (quoting J. William Speros, referring to attorney liability with regard to vendor actions and discussing Residential Funding Corp. v. DeGeorge Fin. Corp., 306 F.3d 99, 108 (2d Cir. 2002) and In re Worldcom, 2004 WL 768573 (S.D.N.Y. 2004)).

FN2: See, e.g., Craig Ball, EDD Showcase: Worst Case Scenario, LAW TECHNOLOGY NEWS (Oct. 31, 2006) at http://www.law.com/jsp/legaltechnology/pubArticleLT.jsp?id=1162215324083, [hereinafter Worst Case] (quoting Michael Arkfeld, “[t]he bottom line is that when you handle electronic or paper evidence, you need to include quality control standards that assure disclosure of all responsive evidence to the opposing side. These efforts must be reasonable and documented…[i]n my experience, the one thing judges insist on is that you take reasonable steps to diligently search, process, and disclose responsive discovery.”).

Once the selection of a technical vendor has been accomplished, the process utilized to find and process the data should be closely monitored. Recall that the court in Peskoff warned that it intended to examine the process used by the responding party. In another case of an investigative process coming under scrutiny, a court clarified that it had required the producing party to reveal search terms it had used to identify relevant documents in order to give the requesting party “an avenue to test or assess the scope of the search terms.” In re CV Therapeutics, Inc. Securities Litigation, 2006 WL 2458720, at *2 (N.D. Cal ).

Posted in Data Collection, Duty to Conduct a Reasonable Inquiry, Effectively Managing E-Discovery | Tagged: , , | Leave a Comment »

E-Discovery Pitfalls: Uncharted Territory

Posted by rjbiii on October 5, 2007

The story of Phoenix Four v. Strategic Resources Corporation is the third installment in our series on e-discovery pitfalls.

Phoenix Four (Phoenix), an investment firm, sued Strategic Resources Corp. (SRC), its investment advisor, for breach of fiduciary duty, common law fraud, and negligent misrepresentation. Phoenix was SRC’s sole client. Class, what happens when your only client sues you? Right, you go out of business.

In April or May 2004, Phoenix stopped paying fees to SRC and SRC ceased operations shortly thereafter. Between August and October 2004, SRC delivered to Phoenix and its representatives all paper records that belonged to it. Between August and September 2004, SRC transferred all of Phoenix’s electronic accounting records to Phoenix’s designated accounting representatives.

(citations omitted).

As the revenue stopped coming in, SRC found itself unable to pay the rent.

Sometime in February or March 2005, SRC’s landlord commenced proceedings to evict SRC from its offices in Carnegie Hall Towers, New York. SRC vacated its office space on or about March 31, 2005, prior to the commencement of this lawsuit. When the SRC Defendants moved out of Carnegie Hall Towers, they left behind Phoenix marketing documents, old prospectuses, and trade publications. They also left behind at least ten computer workstations. SRC’s landlord subsequently disposed of the abandoned documents and computers. [SRC co-founder Paul] Schack did not recall discussing with Van Pelt, Hopkins, or anyone else whether the workstations contained Phoenix-related material prior to abandoning them. By that time, SRC’s technical specialist had already left SRC’s employ.

(citations omitted, emphasis added).

Okay, here is the first real trouble with discovery, although it would be wrong to say that trouble (with a capital “T”) hadn’t already arrived. Obviously, just leaving workstations containing potentially relevant material to a lawsuit after you’ve realized you’re about to be sued is a bad idea. The court thinks so too, but we’ll get to that. What happens next?

The SRC Defendants took with them from Carnegie Hall Towers about fifty boxes containing business records pertaining to SRC and Phoenix, two servers, and at least two computer workstations. Schack, who subsequently started a new business venture, housed these items in his new office and used at least one of the servers in his new business.

Okay, so now we have the old equipment residing in a new business. In May, Phoenix files its complaint. The judge picks up the tale.

Prior to and immediately following receipt of Phoenix’s first set of document demands in August 2005, Mound Cotton, counsel to the SRC Defendants, discussed with them the need to locate and gather pertinent paper and electronic documents. Schack and Hopkins searched the computer system in Schack’s new office and informed Mound Cotton that they had failed to locate any electronic files or folders that pertained to Phoenix or SRC. They did not search the servers, however, as Schack was unaware that there was any pertinent information on them. The SRC Defendants also advised Mound Cotton that “because SRC was no longer in operation, there were no computers or electronic document collections to look through or search.” Mound Cotton attorneys reviewed hard copy materials made available by the SRC Defendants and subsequently produced these documents, about fifty boxes in all, to Phoenix in December 2005.

Basic question: if you didn’t search the servers, how did you know they didn’t contain pertinent information?

Around late February or early March 2006, a freelance computer technician, Peter Pinti, made a service call to Schack’s office in response to complaints about a malfunctioning server. This server was one of the two that the SRC Defendants had taken with them from SRC’s Carnegie Hall Towers office. After directly accessing the hard drive on the server, Pinti discovered about 25 gigabytes of data-as much as 2500 boxes-stored in a dormant, partitioned section of the server. The computer system in Schack’s office was configured in such a way that the desktop workstations did not have a “drive mapping” to that partitioned section of the hard drive. In other words, “someone using a computer connected to that server could not ‘view’ or gain access to that section of the hard drive and would have no way of knowing of its existence.” Schack immediately contacted his attorneys and was instructed to download the information and deliver it to them. A few days later, Schack asked Pinti to back up the data. Pinti first downloaded the data onto DLT tapes but Mound Cotton’s technology vendor was unable to extract the data from the tapes. On March 13 or 14, Pinti again downloaded the data onto DVDs. The deadline for discovery set in the pre-trial scheduling order for this case was March 12, 2006. See Dkt. 27.

(citation omitted).

Well, I guess we can hope that the data isn’t “pertinent.” Now this is interesting, the judge calls the unmapped partition dormant and even comes close to calling it “inaccessible” above. In fact, he later concludes that the partition fits the definition of “not reasonably accessible.” Read this:

The Introduction to the proposed amendments to Rule 26(b)(2) identifies as a difficult-to-access source “legacy data that remains from obsolete systems and is unintelligible on the successor systems.” Pending Rules Amendments, http://www.uscourts.gov/rules/newrules6.html. at 40. The information on the server in this case, which is in a partitioned section of the hard drive and not accessible from Schack’s newly configured computer system, fits squarely within this description.

Bull! An unmapped partition is easily accessible. But the point is, Phoenix’s counsel could not have adequately explained this. This conclusion was something in the nature of a mitigating factor. So whatever the penalty, keep in mind that it could be worse. This also illustrates the need for network topology maps and standardized procedures for storing data. Lay on, MacDuff!

Mound Cotton received the DVDs on March 15, 2006, and tried to review the documents quickly for privilege, relevance, and responsiveness. On March 20, 2006, Mound Cotton alerted Phoenix to the recently discovered documents and advised that it would inform Phoenix of the nature of the documents “as soon as [it] knew more about [them].” Between March 20 and April 10, 2006, counsel for Phoenix and the SRC Defendants met almost daily at depositions being taken in the case and discussed the status of the production. They also corresponded about the production. On April 10, 2006, SRC responded to Phoenix’s prior discovery requests that all responsive documents had been produced. On April 12, 2006, Mound Cotton informed Phoenix that it would produce the documents in “TIFF” format but Phoenix rejected that format. On April 13, 2006, Mound Cotton told Phoenix that it would provide the documents in an electronically searchable “Case Vault” format. Phoenix did not respond to this offer.

(citations omitted).

Evidently, hoping didn’t work. Phoenix goes on to be so uncooperative as to seek sanctions against SRC. The court decides against issuing an adverse inference instruction to the jury, both for the abandonment of the workstations and the late production of the unmapped partition. About the abandonment, the court says:

Nonetheless, because actual notices of the pending litigations are unavailable, and because of the upheaval in the defendants’ business, I do not find this instance to be one in which gross negligence alone supports an inference that the abandoned evidence was unfavorable to the SRC Defendants.

The court was not so forgiving with respect to the manner in which Mound Cotton (SRC’s counsel) conducted its search for relevant documents:

It appears that Mound Cotton never undertook the more methodical survey of the SRC Defendants’ sources of information that Judge Scheindlin outlined in Zubulake V. Mound Cotton simply accepted the defendants’ representation that, because SRC was no longer in operation, there were no computers or electronic collections to search. Had Mound Cotton been diligent, it might have asked-as it should have-what had happened to the computers SRC used at Carnegie Hall Towers.

It also wasn’t happy with SRC’s investigation. Ultimately, the court decides against any of the more stronger remedies available, and instead fines client and counsel $30,000 each. That had to be a shock for counsel, and an unwelcomed occurrence for SRC. All because of a store of invisible data, that was not to be found on any mapped partition…

Phoenix Four, Inc. v. Strategic Resources Corp., 2006 WL 1409413 (S.D.N.Y. May 23, 2006).

Posted in Data Management, Document Retention, Duty to Conduct a Reasonable Inquiry, Duty to Preserve, E-Discovery Pitfalls | Tagged: , | Leave a Comment »

Case Blurb: Butler; Court discusses granting adversary access to producing party’s information systems

Posted by rjbiii on October 2, 2007

Plaintiff requests that this court order Kmart “to provide [p]laintiff and [p]laintiff’s expert open access to Kmart’s home office databases….” Fed. R. Civ. P. 34(a) does not generally give the requesting party right to search the responding party’s records. In re Ford Motor Co., 345 F.3d at 1317. *FN* In an instance where the responding party has acted improperly, the court may, in its discretion and to preserve discoverable information, respond accordingly. The plaintiff has produced no evidence demonstrating that Kmart has acted improperly. As such, this court will not provide the plaintiff with unfettered access to Kmart’s computer databases. Should additional intervention be required at a later time, the court will consider what measures should be undertaken concerning Kmart’s computer systems and the plaintiff’s access to them.

*FN* The court is aware that In re Ford Motor Co. was decided prior to the amendments to the FEDERAL RULES OF CIVIL PROCEDURE concerning electronically stored information. Those amendments however do not disturb the validity of the Eleventh Circuit’s holding here.

Butler v. Kmart Corp., 2007 WL 2406982 (N.D. Miss. Aug. 20, 2007).

Posted in 5th Circuit, Case Blurbs, Discovery, Duty to Conduct a Reasonable Inquiry, FRCP 34(a), Magistrate Judge S. Allan Alexander, N.D. Miss. | Tagged: , , , , , , | Leave a Comment »

What are attorneys’ responsibilities concerning their clients’ data enterprising?

Posted by rjbiii on September 9, 2007

I have a few passages concerning this very issue:

Existence of electronically stored information. Prior to the Fed. R. Civ. P. 26(f) conference, counsel should become knowledgeable about their clients’ information systems and their operation, including how information is stored and retrieved. In addition, counsel should make a reasonable attempt to review their clients’ electronically stored information to ascertain the contents, including archival, backup, and legacy data (outdated formats or media). U.S. District Courts (Kan.) Guidelines for Discovery of Electronically Stored Information.

In any case in which an issue regarding the discovery of electronically-stored information is raised or is likely to be raised, the court should encourage counsel to become knowledgeable about their client’s information management systems and their operation, including how information is stored and retrieved. Guidelines for State Trial Courts Regarding Discovery of Electronically-Stored Information, Conference of Chief Judges (Rev. Draft, Sept. 2005).

It is ultimately counsel’s duty to preserve and gather discoverable ESI. Leonard Dutchman, Preserving Data in the Wake of Amended Rule 37(f), http://www.law.com/jsp/legaltechnology/PublArticleFriendlyLT.jsp?id=1160643922347 (last visited October 30, 2006).

Counsel has the duty to properly communicate with its client to ensure that “all sources of relevant information [are] discovered.” Phoenix Four, Inc. v. Strategic Resources Corp., 2006 WL 1409413 (S.D.N.Y 2006) (citing Zubulake v. UBS Warburg LLC, 229 F.R.D. 422 (S.D.N.Y. 2004)).

To identify all [potential sources or relevant information], counsel should become fully familiar with its client’s document retention policies, as well as its client’s data retention architecture. Id.

Posted in Attorney Liability, Data Management, Duty to Conduct a Reasonable Inquiry | Leave a Comment »

Case Blurb: Tomar Electronics, obligation to conduct a reasonable inquiry

Posted by rjbiii on August 28, 2007

A party’s obligation to conduct a reasonable inquiry when presented with discovery requests during litigation also triggers an obligation to preserve evidence arises that when the party has notice that the evidence is relevant to litigation or when a party should have known that the evidence may be relevant to future litigation. 3M Innovative Properties Co. v. Tomar Electronics, 2006 WL 2670038 (D. Minn. 2006) (citing Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 216 (S.D.N.Y. 2003).

Posted in 8th Circuit, Case Blurbs, D. Minn., Duty to Conduct a Reasonable Inquiry, Duty to Preserve, Judge Michael J. Davis | Leave a Comment »