After a hectic few weeks of actual law practice, I am back in the blog saddle once again. This time I want to discuss an issue that, although not strictly speaking a bankruptcy issue, significantly impacts the practice of all bankruptcy professionals: electronic discovery. I will address this issue in a series of posts giving you what I think are the most important things for the bankruptcy professional to initially understand about the handling and production of electronically stored information.
As of December 1, 2006, the Federal Rules of Civil Procedure amendments dealing with electronic discovery went into effect. Those Rules, of course, are incorporated into the Federal Rules of Bankruptcy Procedure. In today’s world of computers, networks, and electronic storage of information, the impact that those technologies have on management of information, and potentially the marshaling of evidence for litigation, is huge. The amendment of the Rules is the judiciary’s first attempt at trying to address these mediums outside conflicting court decisions.
What is Electronically Stored Information?
First, it is important to know what it is we are talking about. So, what is Electronically Stored Information? Electronically Stored Information (“ESI”) is any electronic data stored on various media types:
- It exists in our computers, computer peripherals (like printers and fax machines), PDAs, as well as pagers and wireless phones.
- It also resides in storage on disks, back-up tapes or removable drives, CDs, and other forms of media.
- It also exists in a great deal of hidden data in areas such as “metadata,” system data, and deleted data seemingly overwritten.
One important question related to the definition of ESI that is unanswered by the Rules or case law is this: are web-based e-mail programs (e.g., Hotmail, AOL, etc.) used by employees ESI of their employer? In other words, would your client, the client’s employee, or the email provider, have to provide the contents of the email account if the employee accessed it at work, even though the account is ostensibly the employee’s private account? Is it the employer's ESI at that point? If you have an answer to this question I would love to hear from you via a comment to this post.
Why is ESI relevant to my bankruptcy practice?
ESI is relevant to all bankruptcy practitioners because it raises issues involving preservation, production, and privilege. In that regard, it is relevant to litigation, transactional, business counseling, and reorganization practice:
Under the new rules, and in general, any competent business planning and counseling attorney must take into account the client's system for managing, storing, and disposing of ESI. In the old days, firms would keep paper files that, if bulky, were easy to store and made the locating of relevant information fairly easy. But today, with the advent of electronic means of storage, the ability to find relevant information is only as good as the planning and implementation of a logical storage system.
In this vein, it is essential for all business counseling and reorganization attorneys to make sure their clients have updated and current Document Retention Policies. This document makes explicit a firm's policies and procedures regarding the storage and, importantly, the scheduled destruction of data. It is vital, as the Rules allow, to implement a reasonable scheduled destruction policy. Even more important, however, than the creation of a Policy, is making sure the firm actually FOLLOWS the Policy. The provision for proper handling and destruction of documents is of little use if the organization doesn't use it.
Related to that, it is important for any business to have a written policy governing the use of company ESI. The policy must address employees’ personal use of company email and whether employees at work may use web-based e-mail. This is important to prevent transmission of information out of the company in unplanned ways. It also must make clear that the company maintains ownership of ESI. The policy should also state that there is no employee expectation of privacy
Once a bankruptcy petition is filed, and the preference litigation eventually ensues, the above described policies come into play. Any bankruptcy practitioner knows that the filing of a bankruptcy petition, if not in existence already, will lead to litigation. As a result, bankruptcy practitioners have a duty to inform their client's to preserve any and all ESI in anticipation of that litigation. This is prudent, because if competent counsel is representing the creditors or, if appointed, the trustee a Litigation Hold letter will arrive instructing you to do just that. Conversely, you may find yourself in the position of issuing a Litigation Hold letter that instructs the other side of their duty to preserve ESI. In any event, it is crucial that ESI is considered from the start, especially when dealing with large entities, to prevent lengthy discovery battles and the spoliation of evidence.
ESI poses a serious threat to the attorney-client and the work product privilege. Ordinarily, when ESI is produced it is not completely vetted to cull out any privileged information. The Rules provide for this situation by providing for a "clawback" agreement between the parties that requires the return of any privileged information produced. But, in reality the bell cannot be unrung and the better approach is to not produce privileged information in the first place. This can be more easily managed if a detailed and logical document retention policy is implemented, aiding in the search of ESI.
Next time I will address more in depth the duties of an attorney with regard to ESI and the Rules themselves. Stay tuned.
