Ripple effect of court cases means new rules for IT

If you work for a large corporation -- in any department, not just IT -- you’re probably aware of the new FRCP (Federal Rules of Civil Procedure) that go into effect on Dec. 1. The new FRCP outlines the “how, what, and wherefore” of electronic document retention and disposal. But you may not be familiar with the two cases that made the changes necessary.

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The first big bang was Zubulake v. UBS Warburg. In that 2003 case, when an employee sued UBS Warburg, the company claimed it could not find relevant e-mails due to lost backup tapes. At the end of the trial, the judge instructed the jury that it could assume that the missing information was probably damaging to Warburg’s defense. Zubulake was awarded $20 million.

As part of his decision, the judge declared that companies were obliged to preserve data that might be relevant to future litigation. He directed businesses to identify the staffers who were “guardians” of the relevant information and notify them affirmatively and repeatedly of their duty not to destroy that data. Finally, he outlined steps to monitor guardians’ compliance.

The process articulated by the judge in Zubulake v. UBS Warburg describes a procedure now called “legal hold” or “litigation hold,” and it is already followed by many companies today.

The second big bang, Perleman v. Morgan Stanley, also turned on technology. This time the defendant paid even more dearly for its sloppiness. Morgan Stanley was asked to produce e-mails from certain executives sent during a certain period of time. The company used backup tapes to comply. After it turned over the relevant tapes, and the opposing lawyers signed off, the IT department suddenly discovered another 120 tapes with additional backed-up messages in a closet.

Morgan Stanley’s attorneys sent a letter to the judge advising him of the additional material. Then IT found still more tapes, and when the lawyers told the judge about the additional e-mails, he was miffed. Morgan Stanley was fined $604.3 million in compensatory damages, and $850 million in punitive damages.

Legal thought it had everything under control. IT thought it had done its job. The clear lesson is that if legal and IT aren’t playing as a team, everybody loses.

The third big bang was the release of the new federal rules, largely based on these two catalytic cases. The new rules are another reminder that when companies don’t police themselves, they will be policed by external enforcers.