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How New Two-tier Discovery May Impact Information Management and Litigation Involving Electronic Information

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How New Two-tier Discovery May Impact Information Management and Litigation Involving Electronic Information

Published as "New Rule Could Shake Up E-Discovery,"
By George B. Murr
Executive Counsel Magazine, January/February 2007

As amended, Federal Rule of Civil Procedure 26(b)(2)(B) will allow a party responding to discovery requests to forego production of electronic from sources that it deems to be "not reasonably accessible." This effectively reverses the initial presumption that all relevant evidence is discoverable, and effectively creates a new presumption that electronic information that is unilaterally designated as "not reasonably accessible" is not discoverable, absent further motion filing and showing. This "two-tier" approach to electronic information discovery will inevitably have an impact upon how corporations manage electronic information.

The Amendments to Federal Rule of Civil Procedure 26(b)(2)(B)

Rule 26(b)(2)(B) provides that "[a] party need not provide discovery of electronically stored information from sources that the party identifies as not reasonably accessible because of undue burden or cost." Before the amendment to Rule 26(b)(2)(B), all potentially relevant material was discoverable.

Although the proposed Advisory Committee Notes do not specifically define what is or is not "reasonably accessible," the Report of the Judicial Conference Committee on Rules of Practice and Procedure (sometimes herein the "Committee"), examples are provided:

While the features that may make it burdensome or costly to access electronically stored information vary from system to system and with the progress of electronic storage systems over time, examples under current technology include deleted information, information kept on some backup-tape systems for disaster recovery purposes, and legacy data remaining from systems no longer in use.

Prior case law will inevitably provide the point of departure for defining what constitutes electronic information that is "not reasonably accessible." Judge Scheindlin, a member of the Committee, held in the seminal case of Zubulake

  • UBS Warburg LLC, 217 F.R.D. 309 (S.D.N.Y. 2003):

In fact, whether production of documents is unduly burdensome or expensive turns primarily on whether it is kept in an accessible or inaccessible format (a distinction that corresponds closely to the expense of production). In the world of paper documents, for example, a document is accessible if it is readily available in a usable format and reasonably indexed. Examples of inaccessible paper documents could include (a) documents in storage in a difficult to reach place; (b) documents converted to microfiche and not easily readable; or (c) documents kept haphazardly, with no indexing system, in quantities that make page-by-page searches impracticable.

Judge Scheindlin further held that "[w]hether electronic data is accessible or inaccessible turns largely on the media on which it is stored." Judge Scheindlin then details a spectrum of electronic data formats. "Of these, the first three categories are typically identified as accessible, and the latter two as inaccessible."

  1. Active, online data: "On-line storage is generally provided by magnetic disk. It is used in the very active stages of an electronic records [sic] life – when it is being created or received and processed, as well as when the access frequency is high and the required speed of access is very fast, i.e., milliseconds." Examples of online data include hard drives.
  • Near-line data: "This typically consists of a robotic storage device (robotic library) that houses removable media, uses robotic arms to access the media, and uses multiple read/write devices to store and retrieve records. Access speeds can range from as low as milliseconds if the media is already in a read device, up to 10-30 seconds for optical disk technology, and between 20-120 seconds for sequentially searched media, such as magnetic tape." Examples include optical disks.
  1. Offline storage/archives: "This is removable optical disk or magnetic tape media, which can be labeled and stored in a shelf or rack. Off-line storage of electronic records is traditionally used for making disaster copies of records and also for records considered 'archival' in that their likelihood of retrieval is minimal. Accessibility to off-line media involves manual intervention and is much slower than on-line or near-line storage. Access speed may be minutes, hours, or even days, depending on the access-effectiveness of the storage facility." The principled difference between nearline data and offline data is that offline data lacks "the coordinated control of an intelligent disk subsystem," and is, in the lingo, JBOD ("Just a Bunch Of Disks").
  • Backup tapes: "A device, like a tape recorder, that reads data from and writes it onto a tape. Tape drives have data capacities of anywhere from a few hundred kilobytes to several gigabytes. Their transfer speeds also vary considerably. . . The disadvantage of tape drives is that they are sequential-access devices, which means that to read any particular block of data, you need to read all the preceding blocks." As a result, "[t]he data on a backup tape are not organized for retrieval of individual documents or files [because] . . . the organization of the data mirrors the computer's structure, not the human records management structure." Backup tapes also typically employ some sort of data compression, permitting more data to be stored on each tape, but also making restoration more time-consuming and expensive, especially given the lack of uniform standard governing data compression.
  1. Erased, fragmented or damaged data: "When a file is first created and saved, it is laid down on the [storage media] in contiguous clusters. . . As files are erased, their clusters are made available again as free space. Eventually, some newly created files become larger than the remaining contiguous free space. These files are then broken up and randomly placed throughout the disk." Such broken-up files are said to be "fragmented," and along with damaged and erased data can only be accessed after significant processing.

Judge Scheindlin concludes: "Information deemed 'accessible' is stored in a readily usable format. Although the time it takes to actually access the data ranges from milliseconds to days, the data does not need to be restored or otherwise manipulated to be usable. 'Inaccessible' data, on the other hand, is not readily usable. Backup tapes must be restored using a process similar to that previously described, fragmented data must be de-fragmented, and erased data must be reconstructed, all before the data is usable." Id. at 320.1

Misplaced Incentives Allegedly Arising Out of Two-Tier Discovery

Preservation of Potentially Damaging Information. The new "two-tier" discovery rule for electronic information may impact information management and information protocols established by potential defendants. The National Association of Consumer Advocates testified before the Advisory Committee on January 28, 2005 that: "Although there will always be exceptions, it is a given among plaintiffs lawyers that (1) at the outset of the case, most of the relevant documents will be in the exclusive possession of the defendant, and (2) defendants will use whatever means are available to them to avoid producing any damaging documents, even clearly relevant ones." Further, "because of the nature of email communication and the ability to save drafts of documents and metadata, e-documents more often reveal clear evidence, even of such traditionally difficult-to-prove elements as intent." In comments submitted to the Advisory Committee, Trial Lawyers for Public Justice articulated the issue of incentives this way:

If large corporations have strong incentives to be able to label large bodies of data "inaccessible" – because doing so will shield them from scrutiny and avoid the kinds of scandals described above when they commit wrongdoing – then technologies will adapt. Systems will be developed whereby experts can plausibly insist that all kinds of data are "inaccessible," and thus non-discoverable.

The Texas Trial Lawyers Association, appearing before the Advisory Committee, noted that corporate defendants may base their decisions whether to store or encrypt electronic information on reasons other than the best means of conducting their business.

This shift in presumption is particularly troublesome because the presumption is triggered by the assertion of the party who has both the superior knowledge at the outset of litigation to put on evidence in support of the claimed inaccessibility, as well as the means to create inaccessibility (for instance, through a decision to archive or encrypt data) at the outset.

This protects a company going to lengths to encrypt or bury data without regard to the true business reason for that action. This issue regarding access to data should be a cost issue, not an issue of discoverability.

Trial Lawyers for Public Justice testified before the Advisory Committee, warning that "[i]f the proposed rule is adopted, corporations potentially facing legal challenges will have a huge incentive to put as much evidence as possible into media that they can plausibly designate as 'not reasonably accessible.' Creating this incentive could easily hamstring important litigation." In essence, the amended discovery rules may have an unintended impact upon business practices and information technology.

Undue Burden and Discovery Cost-Shifting. This disincentive to manage accessible information may also arise out of the litigation itself. That is because the meaning of what is "reasonably accessible" is inexorably linked to the "undue burden" and "cost" of producing the electronic information at issue during litigation. The Zubulake opinion states:

Thus, cost-shifting should be considered only when electronic discovery imposes an "undue burden or expense" on the responding party. The burden or expense of discovery is, in turn, "undue" when it "outweighs its likely benefit, taking into account the needs of the case, the amount in controversy, the parties' resources, the importance of the issues at stake in the litigation, and the importance of the proposed discovery in resolving the issues."

Accordingly, if the information is not accessible, and if obtaining the information would be costly, it is more likely to be considered "not reasonably accessible" by the court. In addition, the responding party may designate the information as "not reasonably accessible" and refuse to produce it.

The responding party may also be better able to have the costs of production shifted to the requesting party. Again, it is held in Zubulake, that "courts have devised creative solutions for balancing the broad scope of discovery prescribed in Rule 26(b)(1) with the cost-consciousness of Rule 26(b)(2). By and large, the solution has been to consider cost-shifting: forcing the requesting party, rather than the answering party, to bear the cost of discovery." Accordingly, whether or not the court will consider the electronic information "reasonably accessible" is, in large part, a function of the burden and cost of producing the electronic information at issue. The factors considered in deciding whether to shift costs include "[t]he total cost of production, compared to the amount in controversy; [t]he total cost of production, compared to the resources available to each party; [and] [t]he relative ability of each party to control costs and its incentive to do so[.]" For this reason as well, a potential defendant has a disincentive to effectively store electronic information for easy and inexpensive access.

Looking Forward Under the Rules Amendments Regarding Electronic Discovery

Whether these suspected incentives materialize as corporate information policy or litigation strategy is yet to be determined. Rule 26(b)(2)(B), as amended, does not prevent discovery of all electronic information; it only requires that the requesting party make an additional showing. It has no impact upon ordinary hard-copy documents. In addition, the courts may execute a "trial run" of the discovery requests to ascertain the costs involved, in essence ordering some portion of the discovery to ascertain whether or not the requested production involves undue burden and expense in the first place. What may be ordered by the court to be produced during this "trial run" will be difficult, if not impossible, to predict by the producing party. Finally, the Advisory Committee has noted that in at least one jurisdiction engaging in "two-tier" discovery, no significant change in the discovery procedures have been reported.

Production of Electronic Information Subject to Showing or Cost-Shifting. Even if the responding party asserts that requested information is "not reasonably accessible," this does not completely insulate the information from discovery. And it has no impact whatsoever upon discoverable information in hard-copy format. Under the amended rule, the requesting party need only move to compel, and "the party from whom discovery is sought must show that information is not reasonably accessible because of undue burden or cost."

As noted above, the greater the burden or cost required to access and produce the information, the more likely discovery of it may be resisted under Rule 26(b)(2)(B) by making such a showing in response to the requesting party's motion to compel. In addition, the greater the burden or cost required to access and produce the information, the greater the likelihood that production costs will be apportioned among the parties or shifted to the requesting party.

In any event, the court may decide not to shift production costs, or only to apportion them, leaving the responding party with additional costs of production nevertheless. And, more importantly, if in the end the electronic information is ordered produced, the incentive not to store such information may be outweighed, depending upon its nature and sensitivity of the information at issue. Finally, in the event particularly relevant or damaging information is discovered after the Rule 26(b)(2)(B) procedures are followed, a court may begin to look with some suspicion upon assertions by the responding party that its electronic information is "not reasonably accessible."

Trial Run or Sampling of Electronic Information. Courts may order the responding party to produce a small sample of the electronic information requested by the requesting party in discovery, and it will be difficult, if not impossible, to ascertain exactly what will be ordered produced. Judge Scheindlin explains:

Requiring the responding party to restore and produce responsive documents from a small sample of backup tapes will inform the cost-shifting analysis laid out above. When based on an actual sample, the marginal utility test will not be an exercise in speculation – there will be tangible evidence of what the backup tapes may have to offer. There will also be tangible evidence of the time and cost required to restore the backup tapes, which in turn will inform the second group of cost-shifting factors. Thus, by requiring a sample restoration of backup tapes, the entire cost-shifting analysis can be grounded in fact rather than guesswork.

In effect, the court may order a "trial run" of production of electronic information to better assess for itself what constitutes "accessible" electronic information. The proposed Advisory Committee Note for the amended rule states: "In such cases, the parties may need some focused discovery, which may include sampling of the sources, to learn more about what burdens and costs are involved in accessing the information, what the information consists of, and how valuable it is for the litigation in light of information that can be obtained by exhausting other opportunities for discovery." The Manual for Complex Litigation states: "The court should consider how to minimize and allocate the costs of production. Narrowing the overall scope of electronic discovery is the most effective method of reducing costs." In Zubulake, Judge Scheindlin explained the reason for this:

Given the complicated questions presented [and] the clash of policies … I have decided to take small steps and perform, as it were, a test run. Accordingly, I will order DOJ to perform a backup restoration of the e-mails attributable to Diegelman's computer during the period of July 1, 1998 to July 1, 1999 … The DOJ will have to carefully document the time and money spent in doing the search. It will then have to search in the restored

e-mails for any document responsive to any of the plaintiff's requests for production of documents. Upon the completion of this search, the DOJ will then file a comprehensive, sworn certification of the time and money spent and the results of the search. Once it does, I will permit the parties an opportunity to argue why the results and the expense do or do not justify any further search.

The most likely scenario is that the requesting party ask the court to order a "trial run" on the information that would be of most value and most likely to establish liability (or a defense) against the responding party.

Accordingly, although there may be an incentive not to store damaging information in an accessible format, it may be made particularly vulnerable in such a case.

Experience in State Jurisdictions Engaged in Two-Tier Discovery. The federal rules and the rules of procedures in many jurisdictions already provide for the shifting or apportioning of unduly burdensome production costs between the parties. In addition, three U.S. jurisdictions – California, Texas, and New York – already employ some form of two-tier discovery. Under Rule 196.4 of theTexas Rules of Civil Procedure, "if the responding party cannot – through reasonable efforts – retrieve the [electronic] data or information requested or produce it in the form requested, the responding party shall state an objection complying with these rules. If the court orders the responding party to comply with the request, the court must also order that the requesting party pay the reasonable expenses of any extraordinary steps required to retrieve and produce the information." In effect, the responding party may simply state the electronic information is not reasonably accessible, and the burden shifts to the requesting party, who is likely to be apportioned some share of the production costs.

California and New York allow the shifting of costs. As interpreted by California courts, Section 2031 of the California Code of Civil Procedure requires that the party demanding discovery pay the reasonable cost of extraordinary electronic discovery. In Toshiba America Electronic Components, Inc. v. Superior Court, 21 Cal.Rptr.3d 532, 539 (Ct. App. Ca. 6th Dist. 2004), the California Court of Appeals held that that if necessary, the responding party at the reasonable expense of the demanding party shall, translate any data compilations into reasonably usable form. In New York, case law holds that the requesting party may be required to pay the reasonable costs of production of documents whether they be in electronic or convention hard-copy format.

Despite the fact that these jurisdictions have instituted similar amendments – in fact, the Texas Rule 196.4 effects a "two tier" approach – no significant changes have been noted in the discovery of electronic information there. The Advisory Committee notes:

And Texas, of course, has a much stouter two-tier provision than is proposed in the federal rules. We have heard anecdotally that the Texas provision on the inability to get discovery in the first instance of materials … that are not used in the ordinary course of the producing party's business has actually not led to discovery abuse, that it has worked very well, and it goes much further than the provision that is proposed in the amendments to Rule 26.

Accordingly, although it remains to be seen what the overall impact of the amendments to Rule 26(b)(2)(B) and "two-tier" discovery will be, in those jurisdictions where it already exists, no significant differences were noted by the Advisory Committee.

Conclusion

The amended Rule 26(b)(2)(B), effective December 1, 2006, effectively reverses the initial presumption that all relevant evidence is discoverable, and effectively creates a new presumption that electronic information that is unilaterally designated as "not reasonably accessible" is not discoverable. Some claim that this "two-tier" approach to electronic information discovery will inevitably have an impact upon how corporations manage electronic information, and will create a disincentive for potential defendants to ensure easy access to potentially damaging information. Whether or not these apparent incentives will have a significant impact remains to be seen. The

two-tier discovery process does not completely insulate a party from discovery, and a court may grant specific information to a requesting party without requiring that costs be shifted or even apportioned. Finally, in those places where some form of "two-tier" discovery has been implemented, no major changes in the protocols governing corporate information, or electronic discovery itself, have been noted.

1 The Manual for Complex Litigation will also inform the federal courts deciding what is or is not "reasonably accessible" electronic information. Even before the Committee began its inquiry into electronic information discovery, the Manual for Complex Litigation had provided a framework for analyzing the levels of access to electronic information. See Manual for Complex Litigation (Fourth) § 11.446 (2004) ("Digital or electronic information can be stored in any of the following: mainframe computers, network servers, personal computers, hand-held devices, automobiles, or household appliances; or it can be accessible via the Internet, from private networks, or from third parties.").

The Manual for Complex Litigation also sets forth classifications for electronic discovery that will inform the court's decision.

For the most part, such data will reflect information generated and maintained in the ordinary course of business. As such, discovery of relevant and nonprivileged data is routine and within the commonly understood scope of Rules 26 and 34. Other data are generated and stored as a byproduct of the various information technologies commonly employed by parties in the ordinary course of business, but not routinely retrieved and used for business purposes. Such data include the following:

Metadata, or "information about information." This includes the information embedded in a routine computer file reflecting file creation date, when it was last accessed or edited, by whom, and sometimes previous versions or editorial changes. This information is not apparent no a screen or in a normal printout of the file, and it is not often generated and maintained without the knowledge of the file user.

System data, or information generated and maintained by the computer itself. The computer records a variety of routine transactions and functions, including password access requests, the creation or deletion of files and directories, maintenance functions, and access to and from other computers, printers, or communication devices.

Backup data, generally stored off-line on tapes or disks. Backup data are created and maintained for

short-term disaster recovery, not for retrieving particular files, databases, or programs. These tapes or disks must be restored to the system from which they were recorded, or to a similar hardware and software environment, before any data can be accessed.

Files purposely deleted by a computer user. Deleted files are seldom actually deleted from the computer hard drive. The operating system renames and marks them for eventual overwriting, should that particular space on the computer hard drive be needed. The files are recoverable only with expert intervention.

Residual data that exist in bits and pieces throughout a computer hard drive. Analogous to the data on crumpled newspapers used to pack shipping boxes, these data are also recoverable with expert intervention.

Id. "Each of these categories of computer data may contain information within the scope of discovery. The above categories are listed by order of potential relevance and in ascending order of cost and burden to recover and produce." Manual for Complex Litigation (fourth) §

11.446 (2004). Similar to the Zubulake, the Manual for Complex Litigation should be consulted by litigants and the courts in applying the new language of Rule 26(b)(2)(B). See id.

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