Yet Another Iron for the Fire

Perhaps you’ve heard of Zubulake v. UBS Warburg? How about Coleman v. Morgan Stanley? If you haven’t, chances are you’re legal department has. And, if they haven’t contacted you yet, chances are they are going to.

In the Spring of ’05, two verdicts were handed down that slapped UBS Warburg and Morgan Stanley with hefty penalties because the companies were unable to produce electronically stored data in a timely fashion.

In the Zubulake wrongful-termination case, UBS Warburg got hit with $29 million verdict because of destroyed emails relevant to the case. In Coleman v. Morgan Stanley, Morgan Stanley was penalized, in total, a whopping $1.5 billion.

Yes, that’s right, $1.5 billion with a “B”, for continuously coming up with new data stores even after their counsel had certified the completeness of already disclosed ESI (electronically stored information).

Because of this, the judge, fed up with the continuous stream of new information (an entire warehouse on Long Island in one instance), instructed the jury to assume fraud on the part of Morgan Stanley, said Mary Mack, Technology Counsel & Director, Solution Design for Fios, a provider of electronic discovery services.

“Every couple of weeks (Morgan Stanley) would go to the judge and say, ‘Oh, there are 2000 backup tapes in that closet we forgot to disclose. We’re disclosing it now and now were complete’,” said Mack. “And they would come back two weeks later and, ‘Oh, by the way …’. So each one of these things was like a water dripping on the head of the judge.”

At the heart of both of these verdicts is the failure of the defendants to either find, in a timely and comprehensive fashion, ESI requested by the plaintiffs, or the destruction of those records (in Zubulake and Morgan Stanley, many of these records were emails), said Andrew Lochart, senior director of Worldwide Marketing for Postini, a email security and management solutions vendor.

Where IT Fits

Okay, so you may think this is a problem for the legal department and you would be partially correct. But, because both cases revolve around an IT department’s inability to support the legal team, it now becomes a major (and potentially expensive) issue for the CIO, said David Isom, co-chair, National eDiscovery & Retention Group at the law firm of Greenberg & Traurig.

“That’s the main sounding call of (Coleman v. Morgan Stanley); namely that CIOs damn well better find out where their information is and be able to have control over that or knowledge about it or they will continue to have that kind of problem,” he said.

Even though these are not the first cases that involve the sloppy handling of EST, both cases have put a sharp point on the ESI issue, said Lochart.

In Coleman the wake-up call is obvious, but the Zubulake case—in no small part because U.S. District Court Judge Shira Scheindlin is personally interested in e-discovery issues—has lead to amendments to the Federal Rules of Civil Procedure. If adopted, they will go into effect in December of this year.

Basically, what the rules do is take the lawyering out of pre-trial wrangling over what a “document” or “record” is, said Mack.

Prior to Zubulake, lawyers were at liberty to argue over semantics: what is a document? What is a record? Post-Zubulake, once, and if, the rules are codified, this will no longer be the case and the fallout for the IT department could be substantial.

“Until the courts really dug into this issue people were producing paper evidence,” said Deidre Paknad, president and CEO of PSS Systems, an information retention and preservation vendor. “They really hadn’t extended their legal obligations to include the primary source of data: Electronic data.”

Another, and less obvious issue, that sloppy ESI practices bring to light is the cost of having lawyers pour over the data you do find. Without a thorough understanding of where relevant data is stored and what is in it (e.g., the ability to search it effectively and completely) any information that is to be turned over to a plaintiff’s attorneys will first have to be reviewed by your legal department.

Taking into account the massive amounts of data being generated by corporations daily, these costs can add up fast at $200/hour, said Paknad.

“It’s not about a fine or if the court gets mad at you,” she said. “You’re going to pay all that money even if you’re right, even if you’re going to win.”

For CIOs the message is clear: find your data, know what’s in it, and be ready to produce what is relevant it in a timely, complete fashion so your legal team can sign-off on it or face the consequences, said G&T’s Isom.

“One thing that this is doing is making it so that the technology folks and the law folks have to get to know each other better and talk to each other better,” he said. “Because the technology and the law converged and they just have to know each other.”