Welcome to Module 3-G.

Going Deeper Into Rule 26(b)(2)(B)

26b2BThis module contains two essays on Rule 26(b)(2)(B). It is one of the most important tools in the arsenal of any e-discovery lawyer. You need to know it inside out in practice, and, even before you graduate, for the final exam of this course. The module ends with especially challenging assignments.

Do the New Rules Discourage IT Improvements?

Do the 2006 e-discovery amendments to the Federal Rules of Civil Procedure (“FRCP”) reward the continued use of outdated computer systems where information is hard to find and retrieve? Overall, no. But surprisingly one of the new rules does reward inefficient IT, and it is an important rule at that: Rule 26(b)(2)(B). Although it is not the intended purpose of the rule, there is no getting around the fact that 26(b)(2)(B) is a disincentive to IT upgrades designed to improve accessibility to stored information. It does so by providing special protection from discovery to hard-to-access computer data, protection not afforded to any other type of digital evidence.

Fortunately for hardware and software vendors the impact of this one “pro-Luddite” rule is outweighed by the terms of the other new rules, primarily Rules 16(b) and 26(f). They require a party in federal litigation to very quickly identify, preserve, search, and produce relevant computer data. The new FRCP timelines established by these rules cannot be met by businesses unable to quickly access the high volumes of electronic records stored on their computer systems. For that reason, the overall impact of FRCP, despite Rule 26(b)(2)(B), supports the upgrade and migration of IT systems to improve information accessibility. A company in litigation today must be able to quickly and efficiently locate and retrieve information relevant to the dispute. It is foolish to continue to use outdated technology where that is often difficult, if not impossible. In fact, that can often make the difference between winning and losing a lawsuit. That is why many companies are now moving away from unsearchable backup tapes, to new searchable tape systems, archiving, live mirroring, or other solutions. That is also why they are investing in software to more efficiently search and preserve information, especially emails.

Rule 26(b)(2)(B) FRCP goes against this trend and provides some small comfort to procrastinators who put off these needed upgrades. This rule actually encourages inefficient IT because it places hard-to-find computer data off limits from discovery, absent a special showing of good cause not required for all other computer evidence. In other words, if you store computer data so that it is hard to access, then, as a general rule, when you are sued, this information is, to a large extent, exempt from discovery. Unlike other relevant computer information that is stored efficiently, so that it can be reasonably accessed, if information is very difficult to access, then you do not have to access it at all. You do not even have to search it to see if it contains relevant evidence, and so, of course, you also do not have to produce it. You just have to disclose that it exists, and explain why it is hard to get to. Then it is up to the requesting party to try to persuade the court that special circumstances exist to justify the burden and expense of discovery. This is a so-called “two-tiered” system of discovery, with “not reasonably accessible” data requiring a second-tier of good cause proof to be discoverable.

Here is the full text of Rule 26(b)(2)(B):

(B) A party need not provide discovery of electronically stored information from sources that the party identifies as not reasonably accessible because of undue burden or cost. On motion to compel discovery or for a protective order, the party from whom discovery is sought must show that the information is not reasonably accessible because of undue burden or cost. If that showing is made, the court may nonetheless order discovery from such sources if the requesting party shows good cause, considering the limitations of Rule 26(b)(2)(C). The court may specify conditions for the discovery. (emphasis added)

Information considered by the law to be “not reasonably accessible” and thus protected from ordinary discovery by this rule includes backup tapes, “legacy data,” and “double deleted” files. By “legacy data”, I mean information stored on hardware or requiring software that is no longer used or easily available. By “double deleted” files, I mean files no longer listed in FAT, but still located on a hard drive or other storage device because they have not been written over yet by new information. (For more on what I mean by “double deleted” as opposed to single deleted, see the Blog entry of June 2, 2007.)

The “pro-Luddite” aspect of FRCP inherent in 26(b)(2)(B) seems to have escaped the notice of most IT commentators and vendors, especially those in the information storage and retrieval field. They promote the idea that compliance with FRCP requires companies to upgrade their IT systems. They affirm that FRCP now mandates businesses to make all of their computer data reasonably accessible, especially their email, which is the primary focus of discovery in most lawsuits. To read all of the hype in this area, you would think that the new FRCP contains provisions requiring specific technology improvements, such as archiving of email.

Old_CAR_stuck_mud

They do not, and in fact, as you can see by the terms of Rule 26(b)(2)(B), this rule protects old, inefficient systems. It serves to put information that is not reasonably accessible – that is, information stored in a manner that is burdensome or expensive to retrieve – outside the scope of normal discovery. Therefore, in that way, Rule 26(b)(2)(B) rewards a company that maintains its data inefficiently by excluding that data from discovery. The company is saved from the expense of preserving or searching for that kind of data. To put it simplistically, you do not have to produce what you can’t easily find. So, why make anything easy to find? If you do, you just make it discoverable. Following this argument, the best strategy to avoid the high expense of e-discovery is to store your company’s business information in sources that are not reasonably accessible. This is what I call a Luddite strategy of “deliberate inaccessibility”.

Although I do not agree with this strategy for reasons I will explain below, I recognize that the argument does have some merit. I think this aspect of FRCP should be openly discussed, and not just swept under the rug. In fact, this language in 26(b)(2)(B) is, in my view, and others, one of the most significant weaknesses in the new rules, and will cause problems for years to come. See Garrie, Armstrong & Burdett, Hiding the Inaccessible Truth: Amending the Federal Rules to Accommodate Electronic Discovery, 25 Rev. Litig. 115, 2006 (only abstract is available online). As Garrie, Armstrong & Burdett point out in another law review article on Sarbanes-Oxley and e-discovery, the Zubulake decisions have the same technology-chilling effect in so far as they place a special burden of cost-sharing on a party seeking discovery of inaccessible data, including legacy data and backup tapes.

Zubulake thus creates a perverse disincentive that prevents companies from investing in more efficient data storage technologies, because parties with efficient storage systems are generally forced to produce more digital documents than parties using legacy storage systems. Although companies eventually may determine that the need for a newer storage system exceeds the risks posed by broad electronic discovery, litigants should not be forced to weigh potential adverse legal consequences against the benefits that could be realized by investing in appropriate systems for their business needs. (footnotes omitted)

Electronic Discovery and the Challenge Posed by the Sarbanes-Oxley Act, Garrie & Armstrong, Electronic Discovery and the Challenge Posed by the Sarbanes-Oxley Act, 2005 UCLA J.L. & Tech. 2, Para 13.

Other commentators acknowledge the problem, but then dismiss it too easily by stating that courts will see through any fraudulent schemes to hide evidence in inaccessible systems. This argument assumes fraudulent intent. For authority these commentators usually cite the Rambus saga of cases. Rambus, Inc. v. Infineon Tech. AG, 220 F.R.D. 264, 284 (E.D. Va. 2004); Rambus, Inc. v. Infineon Techs. AG, 155 F.Supp.2d 668, 680-83 (E.D.Va.2001); Rambus, Inc. v. Infineon Techs. AG, 222 F.R.D. 280, 286 (E.D.Va.2004); Samsung Electronics Co., Ltd. v. Rambus, Inc., 439 F.Supp.2d 524 (E.D.Va., July 18, 2006). These cases expose the deliberate actions by Rambus to change its record retention policies and physically destroy evidence in anticipation of bringing patent litigation.

This kind of facile response – ”don’t worry about 262(b)(2)(B) because the courts will pick up on any fraud” – begs the question. Obviously if a company moves all of the data it does not want found into a legacy system before filing suit, instead of just destroying it as in Rambus, then this is a fraudulent scheme and will likely be exposed. But this does not address the more realistic scenario of a company that simply continues the status quo of maintaining old systems with unreasonably accessible data. It does not address the non-fraudulent scheme. The strategy of “deliberate inaccessibility” is not necessarily fraudulent. In most cases it will more likely be driven by procrastination and short-sighted thinking.

Again, to reiterate, I do not think a company should follow this kind of strategy of inertia. A company should not put off upgrades to their IT systems to make more information accessible, just because this might take the information out of the protection of Rule 26(b)(2)(B). The strategy of inaction is too risky. Businesses should improve their IT systems, especially email, and move away from old technologies that are hard to search. Everyone, especially businesses involved in frequent litigation, should move towards making their information retrieval more efficient and reliable. I think they should do so both for business purposes, and for litigation readiness purposes. But it is not a simple black and white matter of compliance with FRCP as some contend. The reality is, FRCP is a mixed bag, and companies should act now to improve information accessibility primarily for business and records management efficiency reasons, and only secondarily because of litigation.

Even from the litigation perspective alone, a full risk analysis counsels in favor of technology improvement, not status quo. Attempts to rely on 26(b)(2)(B) to protect data from discovery by using obsolete storage, such as tapes and legacy systems, are too risky. The risk is unacceptable because the exemption of inaccessible data from discovery is in turn subject to a second-tier ”good cause” exception. The vague “good cause” exception allowing discovery is not defined by the rules. Under this second-tier analysis a court can require the production of even inaccessible records, regardless of how much burden and expense this may cause. This is an unacceptable risk because the expenses in a situation like that can be enormous. Costs of three million dollars in just five months are not that unusual. See Kentucky Speedway, LLC v. NASCAR, 2006 U.S. Dist. LEXIS 92028 (E. D. Ky. Dec. 18, 2006). It is true that a court has discretion to shift some of these costs onto the requesting party, but you cannot count on that.

Good cause for discovery of inaccessible data can be shown in any number of ways, depending in large part on how the governing judge views the case and the discovery sought. The Rules Committee Commentary specifies some of the factors they think a court should consider in finding “good cause”. These are suggestions only, and are not binding on any court.  Here is my summary of the factors the Committee suggested be considered to decide whether there is good cause to allow discovery of ”not reasonably accessible” information:

1. The specificity of the discovery request.

2. The quantity of information available from other, more easily accessed sources.

3. The failure to produce relevant information that seems likely to have existed but is no longer available from more easily accessed sources.

4. The likelihood of finding relevant, responsive information that cannot be obtained from other, more easily accessed sources.

5. Predictions as to the importance and usefulness of the requested information.

6. The importance of the issues at stake in the litigation.

7. The parties’ resources.

It is a long list, and not exclusive, and everyone knows that it will be one of the most heavily litigated parts of the new FRCP for many years to come.

Since the good cause exception is so general and vague, not to mention hard to predict, it is foolish to keep information in the dark based on the hope that it will, for that reason, never be subject to discovery. You never know when a court may require you to search in the dark at great expense.

Also, and even more importantly in my opinion, that is no way to run a business or manage records. Why keep information if you don’t want it, and can’t use it? It might all come back to haunt you some day (just ask Morgan Stanley), and in the meantime it costs money to store. The best solution to an archaic computer system is to throw it out, and upgrade. The best solution to archaic information is to throw it out, period. If there is no valid business purpose or legal requirement to save records, then destroy them. Don’t just save information because you have the ability to do so. That is a natural pack-rat tendency of most IT departments, and the one that annoys lawyers the most. Of course, don’t act rashly either. Think long and hard, and be sure that you don’t need the records. Then take the time to purge and destroy, and do it the right way. Follow the guidelines of Rule 37, document everything, and so protect against any later spurious charges of spoliation.

_____________________

Case Where an Employer was Allowed To Mirror Employees’ Home Computers and Obtain Inaccessible ESI.

A District Court in Missouri became one of the first in the country to employ the new inaccessibility analysis under Rule 26(b)(2)(B). Ameriwood v. Liberman, 2006 WL 3825291, 2006 U.S. Dist. LEXIS 93380 (E.D. Mo., Dec. 27, 2006). The plaintiff in another trade secret theft case moved to compel the defendants (former employees of plaintiff) to allow a complete mirror image inspection of the hard drives on all of their computers, including their home computers, and other portable storage devices (like thumb drives). The defendants objected on the basis that the mirror imaging sought constituted a request for inaccessible data, was unnecessary and intrusive.

A mirror image of a hard drive is an exact duplicate of the entire drive, including deleted files, slack and free space. Id. at fn. 3. A trained computer forensic expert can examine a mirror image of a drive and reconstuct files that have been deleted, thus transforming them from inaccessible to accessible. This process can, however, be quite expensive. As a general rule, mirroring or inspection of an entire hard drive is not permitted without good cause. It is analogous to allowing a requesting party to inspect an entire paper filing cabinet, instead of just the particular files in the cabinet that are relevant, and search the garbage cans too.

Still, in this case the court granted the employer’s motion because: (1) of the close relationship between the plaintiff’s claims and the defendant’s computer equipment; (2) facts placing in doubt that all responsive documents have been produced; and, (3) Plaintiff’s willingness to pay for the expert forensic examination costs involved in the mirroring.

The court followed the new burden shifting analysis of new Rule 26(b)(2)(B) to reach this result. The Rule provides:

On motion to compel discovery . . . , the party from whom discovery is sought must show that the information is not reasonably accessible because of undue burden or cost. If that showing is made, the court may nonetheless order discovery from such sources if the requesting party shows good cause, considering the limitations of Rule 26(b)(2)(C). The court may specify conditions for the discovery.

The defendants first argued that they had already searched their ESI and produced all discoverable ESI and thus there was no need for a complete mirror image production too. In essence, they argued that this was “just a fishing expedition” not permitted under the rules. Plaintiff effectively countered by producing an email to defendants that they had obtained by subpoena of a third party. This email should have been in defendants’ custody and produced by them, but it was not. This cast doubt on the completeness of defendants’ production, and thus supported plaintiff’s argument that the mirroring was needed.

Defendants next argued that the mirror was a request for ESI not reasonably accessible to them because of undue burden and cost. Defendants supported this objection with affidavits of the significant costs involved in mirroring all of their computers and drives, recovering deleted information and then translating it into reviewable formats. The court agreed that defendants had established that the ESI requested was inaccessible to them under Rule 26 (b)(2)(B). But, that is not the end of the analysis. The rule goes on to still allow discovery of inaccessible data if the requesting party, here the plaintiff, shows good cause.

The plaintiff sustained this burden under the seven point good-cause inquiry suggested by the advisory committee notes to the rule. The third criteria was particulary persuasive in this case: “(3) the failure to produce relevant information that seems likely to have existed but is no longer available on more easily accessed sources.” This factor was met by the email produced by the third party, but not by defendants.

Good cause for the mirroring requested was also found in the allegations of the complaint itself, in that the trade secret theft here was allegedly accomplished by the computers in question. As the court explained:

Furthermore, in cases where a defendant allegedly used the computer itself to commit the wrong that is the subject of the lawsuit, certain items on the hard drive may be discoverable. Particularly, allegations that a defendant downloaded trade secrets onto a computer provide a sufficient nexus between plaintiff’s claims and the need to obtain a mirror image of the computer’s hard drive. . . . .In the instant action, defendants are alleged to have used the computers, which are the subject of the discovery request, to secrete and distribute plaintiff’s confidential information. How and whether defendants handled those documents and what defendants did with the documents is certainly at issue. The Court recognizes defendants’ privacy concerns over the information contained on their computers, but finds that the procedure below in addition to the Court’s protective order sufficiently addresses these interests.

In performing the good-cause inquiry, the Court is also permitted to set conditions for discovery, including but not limited to payment by the requesting party of part or all of the reasonable costs of obtaining information from the sources that are not reasonably accessible. See Fed. R. Civ. P. 26(b)(2) advisory committee’s note. As plaintiff does not object to incurring the costs for the requested procedures and defendants do not perform these procedures in the regular course of their business, plaintiff will incur the costs involved in creating the mirror images, recovering the information, and translating the information into searchable formats, as described below. For the above reasons, this Court finds that plaintiff has shown good cause to allow it to obtain mirror images of defendants’ hard drives under the following conditions.

The court then set forth conditions designed to protect the privacy rights of defendants to the ESI on their computers, including their home computers. The court followed the procedures set forth by the seminal case in this area, Playboy Enterprises v. Welles, 60 F. Supp. 2d 1050, 1054 (S.D. Cal. 1999). Essentially, a third party expert does the exam and restoration, and then turns over a copy to defendants’ counsel of all ESI found and recovered, including deleted files. Defendants then review the restored ESI and produce all data responsive to discovery requests, and log any responsive but privileged ESI. Thereafter plaintiff may file motions to compel if warranted.

SUPPLEMENTAL READING: Read the articles and cases cited here of course. Then carefully study the Ameriwood and Playboy cases referred to herein. What was the document retention policy was of Wells, the former Playboy centerfold? Do you think the judge believed her? Do you?

NON-MANDATORY ADDITIONAL READING. Do a West or Lexis search of Rule 26(b)(2)(B) and read the cases that have an actual discussion of the rule, as opposed to just a quick cite to the rule.

EXERCISE: Do a Google Scholar, West or Lexis search of Playboy Enterprises v. Welles and find out how many cases have cited to it. Look for one from your state.

Discretionary Exercise: Find a well-crafted order designed to allow for inspection of a party’s computer while providing protection privacy safeguards. What provisions in the order did you find to be the most ingenious? What parts may cause trouble or otherwise seem ill-conceived?

Students are invited to leave a public comment below. Insights that might help other students are especially welcome. Let’s collaborate!

Copyright Ralph Losey 2015

Ralph Losey is a practicing attorney who specializes in electronic discovery law. He is a principal in a U.S. law firm with over 50 offices & 800 lawyers where he supervises electronic discovery work and litigation support. Ralph has written over two million words on law and technology, including six books on electronic discovery. His latest books are "E-Discovery for Everyone" (ABA 2017) and "Perspectives on Predictive Coding" (ABA 2017) (ed. & contributor). His blog is widely read in the industry: "e-DiscoveryTeam.com." Ralph is the founder and principal author of "Electronic Discovery Best Practices" and "e-Discovery Team Training," a free online course covering all aspects of e-discovery. Ralph's sub-speciality is the search and review of electronic evidence using multimodal methods, including artificial intelligence. He also has a free online training program to teach these advanced methods - the "TAR Course." Ralph has devoted a month of his time each year since 2013 to research and test various AI-enhanced document review methods. In 2015 and 2016 Ralph and his Team participated in the TREC Total Recall Track experiments sponsored by the National Institute of Standards and Technology. Ralph has been involved with computers and the law since 1978. His full biography is found at RalphLosey.com. Ralph is the proud father of two children, Eva M. Losey and Adam Colby Losey, a high-tech lawyer married to another e-discovery lawyer, Cat Jackson Losey, and, best of all, Ralph has been married since 1973 to Molly Friedman Losey, a mental health counselor and life-long friend.

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