Two proposed amendments to the federal Rules of Civil Procedure, if passed by Congress, will have a major impact on corporations and their IT departments. One expert I spoke with called the situation a legal Chernobyl.
The two proposals are specifically targeted at electronic discovery. First, the proposed amendments to Rule 26 will require attorneys for both parties to a litigation in Federal court to sit down prior to the proceedings to discuss their clients’ document management systems. That’s right; you read that correctly.
The rule also requires each company to designate a spokesperson for its IT group. This is the first time the courts are bringing IT directly into litigation, according to Trent Dickey, attorney with Sills, Cummis, Epstein & Gross.
Next up, Rule 37(f), also called a safe harbor rule, says that corporations that have lost information but have otherwise acted in good faith cannot be sanctioned. Congress is expected to take action on this rule, one way or the other, by December 2006.
It is probably easiest to comprehend the importance of the changes to Rules 26 and 37(f) by looking at what happens when you don’t manage documents properly. In Zubulake v. UBS Warburg, the judge instructed the jury that it was legitimate to presume that the information Warburg could not provide due to lost backup tapes and e-mails was probably damaging to the company’s case. Zubulake was awarded $20 million.
According to Dickey, both this case and the more widely known Morgan Stanley case, which resulted in fines of $1.45 billion under similar circumstances, were decided 100 percent due to technology -- or rather, due to lack of good technology. If the changes to Rule 26 pass Congress and Rule 37(f) is shot down, next year there could be an awful lot of companies in the same boat as UBS Warburg and Morgan Stanley.
But it’s not as simple as just saving your e-mails, instant messages, and documents, says Bill Lyons, CEO of records-compliance management company AXS-One. It’s not even as simple as having them easily retrieved. “What you want [in an e-mail] is an immutable copy,” he advises.
Everyone knows that the contents of an e-mail can be altered before it’s stored. Companies need to stop that e-mail in the network, make a copy, and then send it on. In other words, there has to be a “chain of custody” for each and every communication. Typical backup and restore procedures were not designed for this.
“CIOs need a policy-based retention system that is workflow based on event or time,” Lyons says. If you can’t segregate e-mails by policy -- say you saved five years of e-mails instead of only three -- you have increased your liability, because whatever you’ve saved is fair game for discovery.
Dickey suggests that companies look at the Sedona Principles, a set of best practices for e-discovery developed by the Sedona Conference, comprising leading lawyers and jurists. He says 80 percent of the cost of litigation is due to discovery. (Well, he’s a lawyer, but it’s got to be at least equal to the legal fees.) If you don’t have a modern electronic system, it could cost you millions to dig through old tapes -- or worse, paper -- to find what you need.
If you think calling the changes to Rules 26 and 37(f) “Chernobyl” is a bit of hyperbole, well then, you can always sit back, do nothing, and wait for the fallout.
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