Europe: In-House Attorney-Client Out the Window

In a stunning decision yesterday the European Court of Justice held that communications between the company and in-house lawyers are not protected from disclosure or discovery.

Law.com quotes London solicitor J. Daniel Fitz, former chairman of the board of Association of corporate counsel, "The ECJ ruling has serious ramifications as it denies in-house attorneys and multinational businesses in Europe and elsewhere the critical legal counsel on competition law matters that companies working in today's global legal marketplace require."

The Guardian's Julianne O'Leary believes that this is an unjustified knock against in-house counsels, who will be unable to do their jobs effectively -- that is to provide sound legal advice to their employers. Law.com's Marcia Coyle agrees in that the ruling is "a blow to multinational businesses".
 
The ruling holds that privilege will only be granted pertaining to "independent lawyers," that is "lawyers who are not bound to the client by a relationship of employment."

I agree that this will drastically reduce the abilities of in-house counsel to provide legal advice, fundamentally changes the role of in-house counsel and will force companies to lean on outside counsel more often. A few things quickly off the the top of my mind which this also affects in the EU:

-Cost of litigation will increase as use of outside counsel becomes more prevalent
-Role of in-house counsel will be drastically retooled to reflect the increased transparency
-Electronic discovery will become more important since in-house counsel communications are now discoverable
-Multinational corporations will need to be increasingly careful policing their communications

Ball Sees Decisions

Over on Craig Ball's EDD Update, he posts in reference to Zubulake that: 

Total reliance on an employee to search and select won't cut it in Judge Scheindlin's court. 

The decision puts a nail in the coffin of custodial-delegated holds and persuades me that, at least in the SDNY, no nabob should delegate preservation and search to minions, and certainly no lawyer should leave search to clients alone.  The opinion prompts further resignation to keep everything--especially all e-mail--and cease rotating tapes [s]hould someone so much as whisper the word "lawsuit."  

Mr. Ball is an e-Discovery thought leader and has practically written the book on the subject. In this case, I could not agree with him more and this relates directly to my last post. ESI must be managed centrally; relying on custodial-delegates is just not defensible AND is inefficient. There is no reason to keep high-cost, high-liability processes alive when there are known processes to replace them.

Extenze That Retention Policy

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From The Modern Archivist's Adam Sand: 

In Takeda Pharmaceutical Company Ltd. V. Teva Pharmaceuticals USA, Inc., 2010 WL 2640492 (D. Del. June 21, 2010), a patent dispute between two pharmaceutical companies, the court ordered that the relevant time period for all discovery requests be expanded to include the past 18 years.  Because the plaintiff had conceived of the patent and reduced it to practice 18 years ago, the documents from the entire time period may contain relevant data.

 This is not a new trend. Companies are being forced to hold onto their ESI for longer and longer periods of time due to the increasing liability of lawsuits. In specific, companies with a critical mass of intellectual property (especially in the case of long product development cycles such as in Pharma), can be hamstrung to hold onto their information for years.

 Although it is currently unclear as to an industry standard or mandate, as Mr. Sand continues, "it is possible that more organizations will be holding on to their ESI for ten years or more." This brings to the fore two relevant issues:

 1. How are companies going to realistically enforce these policies?

 2. How can companies manage the vast amount of data these retention policies force them to hold?

 The solution for the execution of the policy is to simplify, and interestingly enough the solution for the storage will follow. In order to enforce such a policy, ESI must be centrally managed. There is no way to ensure proper life cycle management if there are either multiple copies or multiple policies or some combination of both. One copy, one policy will ensure proper retention compliance.

 Storage, then, will see dramatic reduction if there is only one copy! Check out www.zlti.com for more.

p.s. We are launching a new site this week, so be sure to keep checking it!

Government Retention Policies

In case you were ever wondering, here is what the government actually has to do in terms of retaining their electronic documents. Whether or not they actually have the ability to do this is another story. Source can be found here.

Document	Retention Period
(1) Records pertaining to Contract Disputes Act actions.	6 years and 3 months after final action or decision for files created prior to October 1, 1979. 1 year after final action or decision for files created on or after October 1, 1979.
(2) Contracts (and related records or documents, including successful proposals) exceeding the simplified acquisition threshold for other than construction.	6 years and 3 months after final payment.
(3) Contracts (and related records or documents, including successful proposals) at or below the simplified acquisition threshold for other than construction.	3 years after final payment.
(4) Construction contracts:
(i) Above $2,000.	6 years and 3 months after final payment.
(ii) $2,000 or less.	3 years after final payment.
(iii) Related records or documents, including successful proposals, except for contractor's payrolls (see (b)(4)(iv)).	Same as contract file.
(iv) Contractor's payrolls submitted in accordance with Department of Labor regulations, with related certifications, anti-kickback affidavits, and other related papers.	3 years after contract completion unless contract performance is the subject of an enforcement action on that date.
(5) Solicited and unsolicited unsuccessful offers, quotations, bids, and proposals:	.
(i) Relating to contracts above the simplified acquisition threshold.	If filed separately from contract file, until contract is completed. Otherwise, the same as related contract file.
(ii) Relating to contracts at or below the simplified acquisition threshold.	1 year after date of award or until final payment, whichever is later.
(6) Files for canceled solicitations.	5 years after cancellation.
(7) Other copies of procurement file records used by component elements of a contracting office for administrative purposes.	Upon termination or completion.
(8) Documents pertaining generally to the contractor as described at 4.801(c)(3).	Until superseded or obsolete.
(9) Data submitted to the Federal Procurement Data System (FPDS). Electronic data file maintained by fiscal year, containing unclassified records of all procurements other than simplified acquisitions, and information required under 4.603.	5 years after submittal to FPDS.
(10) Investigations, cases pending or in litigation (including protests), or similar matters.	Until final clearance or settlement, or, if related to a document identified in (b)(1) - (9), for the retention period specified for the related document, whichever is later.

Departing Employees and the Importance of Saving Their ESI

This is one of my posts up on TMA that I thought would be interesting to revisit due to the high unemployment rates we've been seeing. It seems like there are probably a lot of job losses out there (10% is a lot of unemployed) and companies should be prepared in processing employee data correctly. The consequences of not doing so can be stiff indeed. Read below for more:

Virginia Henschel of Lexis Nexis wrote an interesting piece on the perverse logic of the New Hampshire Attorney General’s Office ESI (non)retention policy.  She is right that government agencies can’t just delete their departed employees’ ESI.  Private corporations can’t hide their heads in the sand either.

Although there are too many examples of sanctions for failing to preserve departed employees’ ESI for just one blog post, I must point out that in May, FINRA fined Piper Jaffray $700,000 for email retention failures and disclosure violations. And this wasn’t Piper Jaffray’s first time through the wringer. Back in December of 2002, leading investment houses including Goldman Sachs, Morgan Stanley, Deutsche Bank, and Piper Jaffray failed to preserve e-mail and were fined a total of $8.25M . As FINRA reports on Piper Jaffray (emphasis mine):

FINRA discovered Piper Jaffray’s continuing email retention deficiencies when its investigators requested all emails sent or received by a former firm employee suspected of misconduct…When reviewing the CD-ROM’s contents, however, FINRA discovered that one particular email was not producedthat investigators had already obtained in hard copy form…Only after further inquiries about that missing email did the firm finally inform FINRA of the intermittent email retention and retrieval issues it had been experiencing firmwide…

It is clear that retaining departed employees’ ESI is an essential component of any good enterprise-wide records management, compliance and eDiscovery system. Employees leaving the company present a formidable compliance challenge for companies and government agencies.  Many companies mistakenly rely on their IT departments to save the hard-drives of the departing employees as well as the departing employee’s mailbox and network drive ESI.  Not only does this waste corporate resources (do you really need all that data?  for how long?), it is also creates increased legal and compliance risk.

I believe that a robust file and e-mail archiving system is needed to ensure 100% capture and storage of this type of ESI.  This system must be customizable so that an organization can consider legal and economic factors to ensure that information is retained as long as necessary, but no longer. Just because ESI can be deleted at the click of a button does not mean you aren’t responsible for it. Many will learn this lesson the hard way, while the ones who are prepared will save significant time and money.

Harkabi v. SanDisk

In an interesting motion released last week in Harkabi v. SanDisk, Judge William H. Pauley has done a pretty good job outlining the considerations of balancing e-Discovery cost and thoroughness.

In essence, during the case SanDisk chose to play dumb (or lazy) and did not produce all relevant evidence, despite admitting that they had some specific pieces, resulting in their negligence. As Pauley quotes, "A failure to conform to this standard is negligence even if it results from a pure heart and an empty head."
 

Yet, interestingly, the judge gives little leeway to SanDisk because it is a technology firm. "Its size and cutting-edge technology raises an expectation of competence in maintaining its own electronic records. The concatenation of omissions and missteps at SanDisk reveal a lack of attention to detail that has worked a hardship on the Plaintiffs and delayed this litigation."
 

Because SanDisk could not locate certain files or images from the hard drives of the custodians (in this case, the plaintiff's own hard drives), they were found to be "At minimum, [they] SanDisk was negligent...The undisputed facts reveal a cascade of errors, each relatively minor, which aggregated to a significant discovery failure."
 

I'm sure it is this kind of embarassing failure which legal teams must look to avoid (in addition to the sanctions, a mere $150,000 in this case).

Dead End: Hold On! Theres a hole in your case...

Over at Practical e-Discovery, they point to the recent ruling in Siani v. State Univ. of New York, 2010 as being critical in the e-Discovery space. To understand why, let us start at crux of the problem: when do organizations have a duty to preserve data?

Is it forever? Or when there is reasonable suspicion of an upcoming case? Does the pre-suit duty to preserve begin by just a letter by a putative plaintiff which even contemplates a suit? Or perhaps when the suit hits? Without a definitive landmark, it is impossible for organizations and legal teams to plan for litigation. And in a world which runs on dependable schedules and efficiency, that means costly and protracted reaction. 

Siani relies upon the the work-product doctrine, which encompasses documents that are prepared “in anticipation of litigation.” As Practical e-Discovery mentions, Siani v. State Univ. of New York reached the reasonable conclusion, 'that if litigation was reasonably foreseeable for one purpose, “it was reasonably foreseeable for all purposes."' Which means that the duty to preserve begins with the creation of any work-product.

The work-product doctrine slices both ways, since by invoking it for protection means that to the organization, litigation was reasonably anticipated and the duty to preserve had been triggered at that point. Again, this translates into the fact that the beginning of the work-product immunity should be the beginning of related electronically stored information (ESI) on legal hold.

In effect, companies must enact legal hold the moment in which documents are prepared in anticipation of litigation. There is no way to do so without a proactive archiving and e-Discovery tool already in place, because otherwise there would be reliance on the custodian (potentially those involved) to retain their own (potentially incriminating) documents. And as we have seen in Adams v. Dell, there continues to be a large question in custodian-trusted legal hold.

As more and more of these cases evolve, organizations must focus on proactive e-Discovery.