Corporations Continue to Play "Hide & Seek" With Electronically Stored Information

It was just a few years ago that images of boxes filled with what looked like confetti filled the evening news, confirming that those associated with the Enron fiasco, including its auditor, Arthur Andersen, had been shredding thousands of pages of incriminating papers. In today’s corporate environment, though, nearly every business record is produced, distributed and stored electronically. And not only is the risk of electronic document destruction very real but proving that destruction is difficult. Absent very careful,comprehensive and aggressive efforts by plaintiffs with the help of appropriately concerned courts, in today’s world, all Arthur Andersen employees would have to have done is click “Delete” to destroy documents. And there would be no boxes of confetti left over to prove it.

Business-related e-mails have grown to account for 25 billion of the 60 billion e-mails sent worldwide everyday, all of which by the very nature of electronic transmission are stored electronically. In addition to common word processing documents, spreadsheets and e-mails, corporate electronically stored information may also include instant messaging logs, backup tapes, database files and even online conversations through consumer software products like Skype and MSN messenger. Because corporations now predominately rely on electronic documents and communications in their day-to-day business activities, it is vital for plaintiffs bringing antitrust, consumer, ERISA or securities class actions against a company to obtain electronically stored information from defendants in order to preserve important evidence and support their class action claims.

The difficult task for plaintiffs involved in complex class actions is getting companies to preserve electronic data and comply with electronic discovery requests (also know as “e-discovery”). To avoid producing damaging information, companies routinely delete relevant electronic documents and e-mail, fail to properly store and map their electronic data and conduct inadequate electronic searches that conveniently produce no relevant documents. Indeed, though
plaintiffs may petition the court to impose sanctions against a company and its attorneys if they fail to properly preserve, maintain and produce electronically stored information, defendant companies systematically refuse to comply with e-discovery requests and their obligation to produce all relevant electronic documents.

Rules of Civil Procedure Address Preservation, Management and Production of Electronic Data

Under the Federal Rules of Civil Procedure, plaintiffs are allowed to establish their case against defendants by making discovery requests strategically aimed at producing evidence that supports the allegations in the pleadings presented in their complaint. The rules of discovery are powerful, not only because they compel defendants to produce evidence, but also because of the wide scope of the evidence that must be produced. Plaintiffs have several tools at their disposal to obtain the evidence they seek, including requests for documents.

In December 2006, amendments to the Federal Rules of Civil Procedure expressly extended permissible discovery to electronically stored information. The amendments to the rules of discovery addressed how defendants must store, preserve and produce electronic data. Specifically, the amendments require companies to preserve electronic data and manage their electronically stored information so that defendant companies have the ability to access the electronic information quickly in the event of litigation.

Failure to manage and produce electronically stored information can result in serious sanctions against the company and its attorneys. For instance, in the recent Qualcomm Inc. v. Broadcom Corp, Inc. case, the District Court for the Southern District of California found that Qualcomm and its attorneys withheld over 45,000 pages worth of highly relevant electronic information that was specifically requested by Broadcom and the court. The District Court held that ignorance of e-discovery problems within the company was not a defense against sanctions. Ultimately, the District Court issued Qualcomm millions of dollars in fines and sanctioned six of its attorneys.

Companies Are Slow to Meet Their E-Discovery Obligations

Nearly two years after the e-discovery amendments to the Federal Rules went into effect, recent studies show that a significant number of companies still do not properly store and preserve electronic data or properly respond to ediscovery requests. A study by IDC, which provides market intelligence and advisory services to IT professionals and business executives, found that 59 percent of the companies surveyed were only in the early stages of creating an e-discovery response team comprised of IT professionals and attorneys. In a recent Deloitte Financial Advisory Services’ study, 17.5 percent of executives admitted that their companies would not be able to properly respond to e-discovery requests in complex litigation. Approximately 12 percent of the 500 companies surveyed stated that they have no policy in place to share clear guidance with the IT department and all other employees on document retention and destruction. According to the study, another 9.4 percent have no policy in place, but distribute specific directives when litigation arises.

Companies know that electronically stored information provides plaintiffs with critical evidence of defendants' conduct. For that reason, companies have been slow to implement the technology and expertise necessary to comply with federal requirements concerning the care, storing and production of ediscovery. The fact that companies are willing to avoid their e-discovery obligations is shocking and requires injured plaintiffs, through competent legal counsel, to work even harder to prove their cases and hold corporate wrongdoers accountable.



newsletter_aug2008.jpg Source : Scott+Scott September 2008 Newsletter