Avoiding an E-Catastrophe

Oscar Wilde once said the only thing worse than being talked about is not being talked about. His quip’s digital-age corollary—in a world where untold numbers of electronic documents like e-mails and text messages crisscross the business landscape every day—might read: “The only thing worse than your internal e-mails becoming public is not being able to produce your internal e-mails when you’re ordered to make them public.” 

Just ask embattled Harris County District Attorney Chuck Rosenthal. Rosenthal was embarrassed in January when more than 1,500 e-mails stored on his office computer were turned over after being subpoenaed during a civil-rights lawsuit. The communications included pornographic, racist, and political messages, as well as love notes between the married prosecutor and his secretary. As devastating as the e-mail revelations were (Rosenthal dropped his re-election bid), a February hearing on contempt of court charges against the D.A. revealed that he had actually deleted about 2,500 other e-mails, despite a court order to produce them.

One of the main problems with electronic communications such as e-mails and Blackberry messages is the casual attitude that seems to surround them. “People often send e-mails as though they were having a conversation with someone in a bar,” says Anthony Falisi, general counsel for Dallas-based Examination Management Services Inc., a national leader in the paramedical services industry. “There are a lot of problems that can come up with e-mails.” Such problems include off-color “jokes” forwarded to colleagues, links to Web sites that definitely don’t fit within a corporate job description, and inappropriate comments that can come back to haunt you in employment suits or other litigation.

Thanks to increasingly routine hard-drive inspections in civil litigation and white-collar criminal investigations, plus forensic software that can show multiple levels of deletions, electronic communications like e-mails or text messages might as well be etched in stone. Perhaps of equal concern are the perceptions that often accompany such communication.

While e-mails sometimes tell only part of the story—the truth but not the whole truth—their preservation and use in a lawsuit can be the equivalent of a sound bite taken out of context. Judges and juries frequently regard electronically stored information as particularly compelling, due to the precise timing and other records of use that make e-mail and other such documents seem impartial. Whether out of personal preference or a desire to leave as small an electronic trail as possible, more and more executives don’t use e-mail at all. One example is Southwest Airlines President Colleen Barrett. Southwest’s in-house counsel are urging employees at all levels to pick up the phone rather than hit the “send” button in the heat of the moment.

Another reason to be mindful of the perils of electronically stored information has to do with the increasing emphasis on electronic discovery (or “e-discovery”) under new legal rules. In December 2006, significant changes to the Federal Rules of Civil Procedure went into effect that subject every company with electronically stored information to potentially onerous discovery. These changes include:

›› Requiring parties to “meet and con­fer” on e-discovery issues early on in litigation and to address such topics as the format in which electronically stored information will be produced, as well as the preservation of information that might otherwise be deleted or overwritten;

›› Requiring parties to know the boundaries of electronic discovery. To avoid being deluged with discovery requests, parties can divide electronically stored information into two categories: “reasonably accessible” (data that the party routinely accesses or uses) and “not reasonably accessible” (which might include deleted data, old legacy systems, and other information that would require significant cost or effort to produce);

›› Creating a “safe harbor” provision that allows a party that has inadvertently produced privileged information to assert that privilege within a reasonable time after the documents have been turned over; and

›› Protecting a party from being sanctioned for failing to provide information that’s lost due to normal computer operations—so long as the party took reasonable steps to preserve potentially discoverable information.

While these rule changes apply only to federal court, a growing number of Dallas County state courts are imposing modified versions of the “meet and confer” requirement in their initial scheduling orders.

According to the 2007 Litigation Trends Survey conducted by Fulbright & Jaworski LLP, just 19 percent of U.S. companies believe they have adopted adequate electronic-discovery protocols to comply with these new rules. Verizon Communications is one company taking a pro-active approach to electronic discovery. Patrick Oot, a senior in-house counsel and director of electronic discovery for the telecommunications giant, recently told the New York Law Journal that his company has created a litigation manual setting out Verizon’s policies on preserving electronic documents and identifying the specific actions that both the IT and legal departments must take. Verizon should certainly be familiar with the costs of discovery. In January 2007, the company told a federal judiciary panel that, for one case, it had hired some 225 lawyers and spent $14 million to search 2.4 million documents just to determine if they were protected by attorney-client privilege.

A Complicated, Technical Affair
Indeed, the cost of dealing with e-discovery has spawned its own industry. Consulting firm Forrester Research told Forbes magazine that e-discovery business totaled $1.5 billion in 2006; with the burgeoning costs brought on by the federal rules changes, Forrester estimated the cost would hit $4.8 billion by 2011. Robert Heller, a partner with D6 Consulting LLC in Lake Dallas, routinely advises companies and law firms on e-discovery issues. Heller cautions that e-discovery is often such a complicated, technical affair that no one should try to do it without help. “You need an expert to manage and implement this process,” he says. “The cost for failure can be devastating.”

Amy Lynn Maxwell, an electronic-discovery specialist with LexisNexis’ Applied Discovery, agrees. She points out that a company can save itself considerable heartache and expense by implementing and enforcing sound document-retention policies and “litigation-hold” protocols (in which the company’s lawyer alerts appropriate personnel or departments about the pertinent categories of documents or electronically stored information that should be preserved and gathered).  “Don’t wait until you’re in litigation,” Maxwell warns. “Without a policy, catastrophe can occur.”

The stakes are indeed high, and some companies have found that out the hard way. In January, during a patent-infringement case in which Qualcomm alleged that Broadcom had violated Qualcomm’s patent on certain video-compression technologies, Broadcom requested certain documents. Qualcomm initially denied the existence of these documents, but during a hearing, a Qualcomm witness testified that the documents did in fact exist. Immediately after the hearing, Qualcomm did an abrupt about-face and turned over more than 230,000 pages of e-mails, company correspondence, and internal memoranda. The judge sanctioned Qualcomm for discovery abuse, invalidating its patents and ordering the company to pay Broadcom an estimated $8.5 million in legal fees.

In a Florida state court, a similar drama unfolded when billionaire Ronald Perelman sued Morgan Stanley & Co. for allegedly bad advice over the acquisition of the Coleman Co. Despite an obligation to produce numerous potentially relevant e-mails, the court found that the financial giant had engaged in a wide range of misconduct, including overwriting e-mails after 12 months, failing to search for backup tapes, failing to notify the other side when additional tapes were discovered, and telling the court it had complied with the court’s order when Morgan Stanley knew it hadn’t. After the judge assessed serious sanctions against Morgan Stanley and permitted the jury to infer culpability, the result was a verdict of $604 million in actual damages, to which a later verdict of $850 million in punitive damages was tacked on. While the billion-dollar-plus verdict was later reversed on appeal, the sanctions for e-discovery misconduct sent shock waves through corporate America.

What can you do to ensure that a case involving your company is decided on the merits, rather than a sideshow of electronic discovery?  First of all, work with in-house or outside counsel to implement a “litigation hold” policy, so that electronically stored information that should be maintained can be preserved and gathered. But don’t just depend on your lawyers. In this brave new world of e-mails that seemingly linger forever, make sure you understand just what kind of electronic information your business has, where and how it’s stored, and the ease or difficulty with which it can be collected.  Finally, educate your employees—not only on the company’s document retention and “litigation hold” protocols, but on e-mail etiquette as well. Remember that what isn’t said cannot be blown up on a screen for 12 jurors to see.

John G. Browning is a partner in the Dallas office of Gordon & Rees, where he handles a wide variety of litigation representing businesses. He can be contacted at [email protected].