Federal Rules of Civil Procedure and ESI: The Evolution of E-Discovery and Computer Forensics – Pt1

Nearly all documents start on a computer and discovery for litigation necessarily requires accessing electronically stored information (ESI). Rules regarding ESI in discovery – whether opponents are allowed access to it and who pays – are fast-evolving and differ from state to state. The Federal Rules of Civil Procedure are used as a touchstone and precedent by courts and states to help define their own rules. This series will look at a few of the major cases, opinions and outcomes that have informed this evolution.

Rowe Entertainment v. William Morris Agency – 2002 –

The Back Story:

Leonard Rowe, of Rowe Entertainment, was a promoter of some 30 years experience. He was president of the Black Promoters Association (BPA). The acts he promoted were primarily black musical artists. At the time, William Morris Agency had a near-monopoly on the kind of musical acts Rowe represented, and that he wanted to represent. However, he found noteworthy that he and his fellow black promoters were never able to represent a white artist. He suspected that they were not being allowed to do so for the entire 114-year history of the William Morris Agency.

He and his fellow promoters in the BPA were required to pay a 50% deposit for many artists. He discovered/asserted that white promoters had different requirements – for instance, white promoters were only required to pay deposits of 10% or even less. Furthermore he found that white promoters were able to represent both white and non-white artists. He called foul and, along with several other plaintiffs, sued the William Morris Agency (along with about 30 other defendants) for anticompetitive racial discrimination.

Among Rowe’s discovery demands were production of a broad (“sweeping”) range of emails, which the court found to be less than focused on the subject matter of the case. The judge let the production go forward, but shifted the entire cost of production to Rowe. The judge used eight factors to decide thus. These factors became the touchstone nationally for several years on how to weight the cost and responsibility for production (especially of emails) of ESI, and whether such production should be allowed to move forward.

This set of eight factors became known as the “Rowe Test.” The factors, each of which was considered to be more or less of the same importance, were:

1. The specificity of discovery requests

2. The likelihood of discovering critical information

3. The availability of information from other sources

4. Purposes for which the responding party maintains the requested data

5. Relative benefits to the parties

6. Total cost of production

7. Relative ability and incentive to control costs

8. Resources available to each party.

Only number 3 was found in favor of Rowe, as the information was not available from other sources. The remaining seven factors were found in favor of William Morris, leading the judge to allow the discovery to proceed, but that Rowe would have to pay the entire cost. The cost amounted to about $200,000.00.

What do the eight factors actually mean?

1: The specificity of discovery requests refers to how targeted the requests are. If the requests are closely targeted to the kind of critical electronic documents and emails only from key players and that are most likely to be of relevant subject matter, then the court should favor having the producing party pay. If the requesting parties demands are overbroad, asking for everything in (and out of) sight rather than what is likely to be relevant, then the court should favor the producing party, leaving the requestor to shoulder the majority of the cost of production.

In the Rowe case, the judge found Rowe’s demands to be “sweeping” and found that the this factor then favored having the requestor (Rowe) bear the cost of production.

2: The likelihood of discovering critical information. If there is strong evidence that the data being sought is of near-certain relevance to the case, or better, if there is an admission by the producing party that the requested electronic data is relevant, the court should favor having the producing party pay. On the other hand if the requests appear more or less to be a fishing expedition, the court will be looking to the requesting party to pay.

In the Rowe case, the court wrote, “However, there has certainly been no showing that the e-mails are likely to be a gold mine. No witness has testified, for example, about any e-mail communications that allegedly reflect discriminatory or anti-competitive practices.” Based on this factor, the court favored William Morris again.

3: The availability of information from other sources. Are alternate sources of discovery available – for instance in hard-copy (paper) form, or as individuals files on computers that personnel has already searched for responsive data? If not, the court should find this factor in favor of the requestor, making it more likely for the producer to be told to bear the cost o production.

This was the one factor found to be in Rowe’s favor, as there was little or no evidence the demanded emails could be found or produced, except by searching backup tapes and hard drives for them.

4: Purposes for which the responding party maintains the requested data references the reason the data exists. Is it kept just for disaster recovery or data recovery purposes? Does it exist simply because someone just forgot to discard it – and the producing party can show this to be true? Then the cost of searching this data more likely should be shouldered by the requestor.

Is it kept for ongoing business purposes, which might include accessing backup tapes or hard drives on a regular basis? Then the court should find it more likely that the producing party should pay for production.

The court found that William Morris either kept much of the requested data inadvertently, or had it just for archiving purposes.

5: Relative benefits to the parties: in most cases, the production will favor the requestor – else why would they request the data? This was also true in the Rowe case, and hence this factor would again favor Rowe having to pay for discovery costs.

6: Total cost of production: If the cost is not substantial, or if discovery is more like traditional discovery, the court should be less likely to shift costs, and leave the presumption that the responding party should bear the costs. However, at the time of the Rowe case, email discovery was more an exception than the rule and hence the court found that this factor would favor William Morris, i.e. that this factor should make Rowe more likely to bear the burden of cost of production.

7: Relative ability and incentive to control costs. In general, the requestor determines the scope of its requests, which would have the court favor having the requestor pay. Such was the case with Rowe.

8: Resources available to each party. This factor only comes into account when there is a large disparity between the sizes of the two parties, such as in a case where an individual faces off against a corporation, where the smaller of the parties may not have the ability to pay for production at all. In a case such as Rowe, where the parties are both companies, the factor is unlikely to come into play, to be a neutral factor.

Rowe was one of the formative cases in what has become Civil Rules with regard to electronically stored information (ESI). The 8-factor test was particularly important in informing future cases as to what ESI should be allowable in discovery and who pays for producing it.

The case itself has had several episodes and court opinions as recent as 2012 have raised popular interest in what many see as racist-based court decisions, where others see outcomes based primarily on following (or not following) technical rules.

Next in this series, another important case leading to the current Federal Rules of Civil Procedure, Zubulake v. UBS Warburg

The Evolution of E-Discovery and Computer Forensics, Part 2: Zubulake V. UBS Warburg

The field of electronic discovery and digital forensics is rapidly evolving. In the early years of this millennium, discovery rules dealt primarily with paper, but with the advent of the computer age, documents are drafted electronically and important rules regarding Electronically Stored Information still needed to be invented. This series looks at a few of the major cases, opinions and outcomes that have informed this evolution.

Judge Shira Scheindlin issued precedent-setting (and often-cited) opinions in the important case of Zubulake v. UBS Warburg – 2003-2005.

The Back Story:

Laura Zubulake worked in New York and Connecticut for the Swiss-based firm, UBS Warburg, Europe’s largest bank at the time. She was an extremely successful equities manager, earning more than $650,000 a year selling Asian equities to institutional investors for a decade. In 2000, she was passed over for a promotion that she had been promised, to take over as senior sales manager of the Asian desk in the U.S. when her superior left that position.

Instead, a Matthew Chapin was given the position, whereupon, according to the plaintiff, he “belittled her in front of co-workers and denied her important accounts… During the trial, a former UBS sales assistant testified that she overheard Chapin call Zubulake “old” and “ugly.” (“UBS Must Pay Ex-Saleswoman $29.3 Mln in Sex Bias Case (Update5)” – Bloomberg, April 6, 2005).

In August 2001, Zubulake filed a complaint with the employment commission, and in October, Chapin fired her, in the process (as the court found) falsifying emails, records and complaints. Zubulake sued UBS for gender discrimination, failure to promote, and retaliation under federal, state, and city law.

UBS argued that Chapin wasn’t abrasive because of sexual discrimination, but rather that he was abrasive to everyone, including male employees. A remarkable argument! The bank maintained that she was fired for insubordination.

When the time came for producing documents in discovery, UBS produced just 100 total emails, yet Zubulake herself was able to produce 450 relevant emails of communications between company staffers. UBS was under litigation hold obligations but still had apparently made hundreds of emails disappear in spite of their obligation to retain them. Furthermore, UBS produced additional emails that appeared to be falsely generated.

When discovery was requested for archival data and backup tapes, UBS asserted that to go after such data would be an undue expense and a burden on UBS. It cited the case of Rowe v. William Morris and asked the court to shift the expense of production to Zubulake based on the “Rowe test,” a set of weighting factors used to determine cost-shifting that derived from the Rowe case.

Judge Shira Scheindlin of the New York Southern District produced five evolving opinions regarding who should pay for production/discovery, to what extent discovery and production of ESI is allowable, and how to determine a party’s duty to preserve evidence. She found that just because data is electronically stored (ESI) doesn’t necessarily make its production an undue expense. In fact, due to the ability to perform machine/computer searches, costs can actually be less than equivalent human searches of paper documents.

The burden of cost is increased with decreasing accessibility, as determined by the type of media on which the ESI is stored. There were determined to be five categories of electronic repositories: online data (such as hard disks), near-line data (such as CDs and other optical disks), offline storage (such as magnetic tapes), backup tapes, and fragmented, erased and damaged data. Backup tapes and fragmented/damaged data were considered to be most inaccessible and therefore most subject to cost-shifting.

The court ordered sampling of the data by having 5 backup tapes restored to determine whether there was a likelihood that the remaining 70+ tapes would produce relevant data. They did produce 600 responsive messages. Judge Schendlin designed a new seven-factor test to determine whether cost-shifting was in order.

The first two factors are considered to be of the most importance.

1: Is the request tailored to discover relevant info? (Fishing expeditions frowned upon).

2: Is information available from other sources? (The parties should get the information from the most readily available sources, such as company reports or public information instead of having to dig though old backup tapes, for instance).

The next three factors are considered to be of secondary importance.

3: Total cost of production v. the amount in controversy (the cost of discovery should be considerably less than the potential winnings in the case).

4: Total cost v. resources available to each party (it shouldn’t bankrupt anyone).

5: Relative ability, incentive to control costs (clearly the party paying for production has a strong incentive to control costs).

The final two factors are considered to be of lesser importance than the first five.

6: Importance of issues at stake in litigation (Will the case have an important impact on society? The Zubulake case had to do with gender discrimination, but was not a groundbreaking case in that area).

7: What are the relative benefits to parties of obtaining the requested information?

(It is generally assumed that the plaintiff aims to benefit and so this test is then rarely considered to be of great importance.)

Eventually, the court found that UBS had lost evidence (some monthly backup tapes were missing), carelessly destroyed evidence (some weekly tapes backfilled the monthly tapes), willfully withheld additional evidence, and even faked evidence. As a result, Judge Scheindlin issued an adverse inference instruction to the jury, “Because UBS’s spoliation was willful, the lost information is presumed to be relevant.” In other words, if data was missing, the jury could assume that UBS destroyed it on purpose because it might have hurt the bank’s case. A disaster for UBS.

Zubulake won more than she’d asked for: $29 million, including $9 million in compensatory damages and $20 million punitive damages. UBS had to pay for depositions and repeat depositions, the costs of the motion, and nearly all the cost of production.

The Zubulake case produced several milestones in the evolution of law around Electronic Discovery, and led to many of the 2006 Amendments to the Federal Rules of Civil Procedure (FRCP). The milestones include:

The parties have a duty to preserve ESI during litigation. – not only once there’s a litigation hold, but also if litigation is anticipated.

Lawyers have a duty to monitor their clients’ ESI compliance. This includes outside counsel! Sanctions don’t only affect the party and inside counsel.

Data sampling is allowed and encouraged. In the discovery process, grab data from a few tapes and hard drives first, for instance – to see if there’s likely to be anything on the rest – or even if it’s all available from a few (and possibly duplicated on the rest).

The disclosing party can shift the costs for less accessible data. If the requestor is looking for information that’s hard to dig up or produce, the cost of producing that may have to be shifted to the requestor.

There may be sanctions imposed for the spoliation of ESI.

The Zubulake case set out rules and tests that have informed later courts’ decisions as well as the 2006 amendments to the Federal Rules of Civil Procedure, and the 2009 California rules. They continue to help shape & inform law with regard to electronically stored information. As a result, the case also continues to change the shape of the computer forensic and electronic discovery industries.

Next in this series: the 2006 ESI Amendments to the Federal Rules of Civil Procedure.