E-Discovery Background: The Billion-Dollar Verdict

This week, I will talk briefly about e-discovery's "billion-dollar verdict."

In 2005, a Florida court sanctioned investment bank Morgan Stanley in the case of Morgan Stanley & Co. v. Coleman Holdings Inc. In 1998, billionaire Ronald Perelman sold his majority share in camping equipment company Coleman, in exchange for Sunbeam stock. After Sunbeam went bankrupt in 2001, Perelman sued Morgan Stanley, claiming he was fooled into accepting the Sunbeam shares.

The judge sanctioned Morgan Stanley for not turning relevant emails over to Perelman. Because of this punishment, Perelman did not have to show he was damaged by the deal. Instead, he had to prove only that he relied on Morgan Stanley's advice on the Coleman-Sunbeam transaction.

After a trial, the jury returned a $1.5 billion verdict for Perelman. This included over $600 million in actual damages, and over $850 million in punitive damages!

This verdict was a shock to the financial world. A billion-dollar decision, because of e-discovery issues! The result drew even more attention to electronic discovery and its importance.

Years later, a Florida appeals court reversed the decision - Morgan Stanley wasn't able to present a defense in the case. But the original verdict put the fear of liability into a lot of people. It showed that e-discovery issues matter.


(And, on an unrelated note, some World Cup congratulations go out to: the U.S. team, for holding England to a draw; the German team, for the crushing defeat of Australia; and the Swiss team, for the shocking upset of Spain!)

E-Discovery Basics: The 2006 changes to the FRCP

On December 1, 2006, the Federal Rules of Civil Procedure (FRCP) were changed, in an attempt to address electronic discovery.
(For the curious, the Rules which were changed were Rules 16, 26, 33, 34, 37 and 45, plus Form 35.)
For about ten years, the federal court system in the United States had struggled with how to handle electronic discovery, and the 2006 changes were an attempt to modernize the discovery process. The changes to the Federal Rules are significant because they are applied not only at the federal level, but also at the state level, as many states in the U.S. use the FRCP as a guideline for their own rules.
The 2006 changes defined the term "electronically stored information", and defined it broadly. (This term is sometimes shortened to "ESI".)
The term is meant to include any kind of information in electronic form.

Here is a brief summary of some of the changes:

- The rules require the parties to a lawsuit to discuss ESI when they meet to talk about the case (this is called the "meet-and-confer").
- The rules roughly adopted Judge Schiendlin's two-tiered system of reasonably accessible data and not reasonably accessible data.
- A "claw-back" procedure was established: if one party accidentally produced material that was subject to attorney-client privilege, the producing party can ask the other side to return or destroy the data.
- The rules created a "safe harbor" - a party usually cannot be sanctioned for not providing ESI that was lost or destroyed as part of the routine, good-faith operation of an ESI storage system.

The rule changes tried to address some of the major issues in electronic discovery:
- The court system wanted to encourage the parties to a lawsuit to be on the same page when dealing with ESI, and therefore they must talk about ESI when they meet and confer about the case, instead of ignoring the issue and then battling over electronic discovery later in the case.
- The drafters of the amendments wanted to encourage parties to quickly produce data; if they included privileged material by accident, the "claw-back" would (in theory) protect them. Of course, when this happens, the other side now has emails between an attorney and client, and can read them. They can't use or disclose the information, but they have it.
- The "safe harbor" was meant to calm some nerves: companies can destroy their data as part of their business routine. However, once a litigation hold is placed on the information, then the data can't be lost or destroyed.

The 2006 changes to the Federal Rules of Civil Procedure removed some uncertainty in the electronic discovery process. They weren't perfect, but they were a good attempt at modernizing the Rules.

E-Discovery Basics, Part One

When talking about electronic discovery, it is helpful to have some context. This post is an attempt to give some quick background information that is useful but yet not too boring.

The United States is a common law country, which means that the law is usually created and updated through decisions made by the courts. When a judge decides a case, she normally looks to precedent to make her decision - how have other courts in her jurisdiction decided this kind of matter? The judge's decision usually then becomes precedent for future cases.
The common law system is contrasted with the civil law system, where laws are normally written by a legislature into a legal code - a list of statutes which are the body of the law.

There is another meaning to "civil law" in the U.S. - here, it is contrasted with criminal law. Civil law usually involves litigation between private parties.
Civil procedure is the body of law which describes how the court handles a civil case - these are rules describing how a case is started, how to communicate with the other side, how to interact with the court and the judge, how to request documents from the other side, etc.
Civil discovery normally takes place before a trial - each side follows the rules of civil procedure to request documents and other material from another party in the lawsuit. The party receiving the request is responsible for examining and searching its own data for anything responsive to the request.

At the federal level in the U.S., the Federal Rules of Civil Procedure describe how a civil case is handled by the court system. These rules also guide the discovery process.
At the state level in the U.S., most states follow the Federal Rules, usually adding some modifications. There are exceptions, though: California and New York (among other states) have their own civil procedure rules.

Electronic discovery is now a very, very large part of civil discovery. Because of the importance of e-discovery, the Federal Rules of Civil Procedure were updated in December 2006 to address electronic discovery. The impacts of these changes are still spreading through the legal system, and e-discovery has become an exciting area of the law.

Welcome to Discovering Electronic Discovery!

(also known as: "Discovering E-Discovery")


What's the purpose of this blog?
It is to share my insights about the world of electronic discovery (also known as e-discovery).

This answer leads to the next question: What is electronic discovery?

Well, e-discovery is legal discovery - part of the legal process where one side in a dispute can request documents from the other side. The 'electronic' part of e-discovery usually refers to documents that were created not on paper, but electronically - emails, spreadsheets, etc. This isn't some obscure legal issue - any person, company or institution that could be involved in a legal dispute should have some understanding of e-discovery.

And, finally, why would my insights matter?

I am an attorney with an undergraduate degree in computer science, so I have studied both the law and the technology of e-discovery. I spent many years in the legal department of a large investment bank, building and then managing a substantial in-house electronic discovery group. I keep myself up-to-date on how the world of e-discovery is growing and changing, and I'd like to share my thoughts and opinions.

My intention in writing this blog is to try to make electronic discovery easier to understand. This is not legal advice, of course, but simply my attempt to make e-discovery more accessable to more people.

Again, welcome to "Discovering Electronic Discovery", and I hope you enjoy your stay.