Time to Revise (or Develop) a Document
Retention Policy: Anticipating the New
Federal Rules of Civil Procedure

According to a recent report from an insurance industry trade publication, 99% of all documents created today are communicated electronically, and most are never even printed. Further, it is estimated that between 60% and 70% of all corporate data resides in or is attached to e-mail. None of this should come as a shock in a world in which people are increasingly connected to the Internet and may be more likely to send an e-mail than use the telephone.

This shift towards electronic communication has already had a profound impact on litigation, and more changes are in store as amendments to the Federal Rules of Civil Procedure addressing electronic data discovery (EDD) go into effect on December 1, 2006. The amendments clarify the duties of litigants and potential litigants to preserve electronic documents and also address the exchange of electronic documents between parties in litigation.

Notably, the discovery phase of litigation is already the most expensive part of almost any lawsuit. During discovery, the parties and their counsel cull through their own documents and those produced by their opponent to identify the evidence on which the case will likely be decided (or the "smoking guns" that will cause the case to settle). As a consequence of the proliferation of electronic documents, EDD (which encompasses all forms of electronic documents ranging from e-mails to wave files) has increasingly become a focal point of business litigation.
 
Unlike their paper counterparts, electronic documents are dynamic and easily disseminated. They also leave "fingerprints" and tend to live on long after they are forgotten. These characteristics present a range of unique challenges when it comes to litigation. For example, it is very easy to forward e-mails beyond the original intended audiences. Once a document has been forwarded, the originator has little or no control over its distribution. Moreover, protocols for filing and storing electronic documents tend to be undefined and substantially less uniform than those related to traditional paper documents. Each encounter with an electronic document may leave a trail showing who accessed it and the changes that were made to it. Furthermore, electronic documents are modified each time they are opened, adding a layer of complexity that doesn't exist with paper. In light of the storage costs associated with this massive amount of electronic information, backups tend to be overwritten with regularity, which leads to lost data.

New Rules Address Electronic Age

Because the existing federal discovery rules were conceived before the proliferation of electronic communications, they are ill-suited to address the differences between electronic and paper documents. The amendments that go into effect on December 1, however, are designed to address the issues arising from these differences. Moreover, their reach is not confined to litigation pending in federal courts. In fact, many states have already adopted their own versions of the amended rules, and most others are likely to follow suit. So why should anyone (other than a litigator) take note of the new federal rules?

There are numerous examples of cases that have been lost because courts and juries drew adverse inferences as a consequence of missing documents. In other words, it is not unreasonable to assume that a company would tend to preserve the documents that are helpful to its cause, while having less incentive to preserve potentially damaging documents. The new rules recognize that companies routinely overwrite or delete electronic documents and that a failure to undertake such maintenance can be costly. Consequently, the amended rules have carved out a "safe harbor" for documents that were "lost" as a result of the routine operation and maintenance of an electronic information system—as long as the actions were taken in "good faith."

What does this mean for a typical business? As a starting point, you should try to navigate into that safe harbor by revising your document retention protocols to ensure that

1. The appropriate policies and procedures actually exist within your company. If they don't, you should devote the time and energy necessary to devise and implement suitable protocols.
2. They are understood throughout the organization and are followed on a consistent basis.
3. They are designed to enable you to retain only those electronic documents that you need for the period (if any) for which they are required to be maintained.

Timing is very important in order to take advantage of the safe harbor. Under the new rules, parties to litigation, as well as those contemplating litigation, are required to have addressed the preservation of electronic documents in advance of pending litigation, as well as anticipated litigation. In other words, it is not enough to implement policies and procedures after the fact.

Reducing Cost and Risk

Formal e-mail policies, training in the proper use of e-mail and enforcement of such policies can be very effective cost and risk management tools. Generally speaking, electronic communications that are sent or received via your company's e-mail system should be limited to business use, with any non-business communications being routed through personal accounts. These steps, aimed at reducing the number of e-mails generated by your employees, may help to limit the cost of EDD by narrowing the scope of the documents to be searched.

Another way to contain the costs associated with EDD is to implement effective records management protocols. One reason that traditional discovery has often been less expensive is that paper documents tend to be filed in a way that makes them easier to access. However, even with electronic data, this does not have to be the case, as there are a variety of newer tools that can simplify the arduous task of sorting through electronic documents.

Recognizing that the costs associated with EDD may be prohibitive, the amended federal rules open up the possibility, in certain circumstances, of shifting that burden to the party seeking the production. As a result, some parties will likely begin using "oppressive" discovery requests as a means of leveraging settlements. In order to reduce the likelihood that you will have to pay for complicated and expensive electronic discovery, your company should be prepared to

1. Show a court that you undertook reasonable measures to store and retain your electronic documents.
2. Demonstrate that you actually stored your documents in a manner consistent with your policy.
3. Explain the process you would have to undergo in order to gather the documents that have been requested of you

In short, the proliferation of electronic documents will continue to have a profound impact on litigation and the costs associated with it. In this environment, an appropriate document retention policy, coupled with sound protocols for the storage of electronic records, can help control the costs of electronic discovery and reduce your overall risk.

As December 1 quickly approaches, there is no time like the present to review your document retention protocols, provide appropriate training and ensure that the policies are enforced throughout your company. Your legal counsel and information technology consultants can help you develop and implement the tools you need to control costs and manage the risks associated with litigation in an age dominated by electronic documents.

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