The rise of electronically stored information (“ESI”) has had a tremendous impact on the early phases of litigation. Parties are able to retain more information than ever before for little cost, and that information is often stored in formats that did not yet exist when New York’s discovery rules were last drafted. Accordingly, corporations and individuals are often confused by exactly what must be retained for potential litigation, when the obligation to retain information begins, and what they must produce to their adversaries during the discovery process. Moreover, the costs of undertaking each of those steps can be immense. The Federal Rules of Civil Procedure (“FRCP”) were updated in 2006 to address some of these issues.
Up until now, the New York Civil Practice Law and Rules (“CPLR”) have not been similarly modified. As a result, the Association of the Bar of the City of New York (“ABCNY”) convened a Joint Committee on Electronic Discovery (“Joint Committee”) to study the effects of ESI on the discovery process. The Joint Committee issued its report in August 2009, recommending several amendments to the CPLR to reflect the changed nature of the information landscape. The Joint Committee observed that litigants have been left in a state of confusion and that ambiguity in the law has forced judges to “apply rules forged long ago in a ‘document only’ world to time-consuming ESI disclosure disputes,” increasing the cost of litigation dramatically. Ass’n of the Bar of the City of New York Joint Comm. on Elec. Discovery Report, Explosion of Electronic Discovery in All Areas of Litigation Necessitates Changes in CPLR, at 1 (August 2009), available at http://www.nycbar.org/pdf/report/uploads/20071732-ExplosionofElectronicDiscovery.pdf (hereinafter, the “Report”) (internal citation omitted).
The Joint Committee was guided by the FRCP revisions and the principles put forth by the Sedona Conference Working Group, which has worked for years to examine how the rules for traditional document discovery ought to be applied to ESI. The Joint Committee’s proposals specifically address the following issues: the duty to preserve and when it attaches, the scope of the preservation obligation, the scope of the production obligation, the forms production may take, and the inadvertent disclosure of privileged materials. This article will summarize the proposed changes to the CPLR, and highlight key takeaways for practitioners.
The Duty to Preserve
It is well known that relevant documents must be preserved in anticipation of litigation. But when does the duty to preserve begin under New York state law? Up until now, the law has been unsettled. The CPLR does not address this issue, and state courts have developed varying standards to determine when the preservation obligation triggers. New York courts have held that a party is under a duty to preserve when it has notice “(i) that the evidence might be needed for future litigation; or (ii) of pending litigation; or (iii) that the circumstances of an accident may give rise to enough of an indication for defendants to preserve the physical evidence for a reasonable period of time.” The Report at 7.
The Joint Committee believes that “because there are severe ramifications from a party’s failure (negligent or otherwise) to preserve potentially relevant evidence, a statutory standard should be enacted to provide clearer guidance on the attachment point of the duty to preserve.” The Report at 7. Thus, the Report proposes a new section of the CPLR, section 3119(a), which would require a party to begin preserving evidence when it becomes aware that “the evidence is likely to be material and necessary to future litigation.” Id. at 11. According to the proposed rule, a party becomes aware that evidence is likely to be material and necessary when it is aware of a lawsuit, a discovery request, or of “circumstances which would lead a reasonable person in the party’s position to believe that future litigation is likely.” Id. at 12 (emphasis added). The Joint Committee interprets “likely” as a greater than 50% chance. The Joint Committee believes that its standard “provides better guidance and a somewhat higher threshold for triggering a duty to preserve” than the standard in many federal courts, which typically requires that preservation begin when litigation becomes “reasonably anticipated.” The Report at 11. The Report also proposes advisory notes to the new section that would help practitioners to determine when a threat of litigation is credible. Id. at 11-12.
The Scope of Preservation
Once a party is under an obligation to retain evidence, what exactly must be preserved? Storing extensive amounts of electronic information in varying formats can be time consuming and costly. Therefore, once the preservation obligation is triggered, parties need guidance to determine what to safeguard. The CPLR does not address the scope of preservation, and thus far resolution of this issue has been left to the courts. When addressing what the scope of preservation should be, the Joint Committee considered federal court opinions, including Zubulake v. UBS Warburg LLC, 220 F.R.D. 212 (S.D.N.Y. 2003) (Scheindlin, J.) and Convolve v. Compaq Computer Corp., 223 F.R.D. 162 (S.D.N.Y. 2004) (Francis, Mag. J.). The Joint Committee also considered the principles put forth by the Sedona Conference Working Group in 2002, as well as its 2007 Commentary on Legal Holds. The Report at 9.
The Joint Committee believes that the CPLR should address the scope of the preservation obligation in order to assist potential litigants as they draft litigation holds and preservation orders. Id. at 17. Therefore, the Joint Committee recommends adopting portions of the Sedona Principle and Commentary as CPLR 3119(b). The new provision would require that a potential litigant use “reasonable and good faith efforts to retain information that may be material and necessary to pending or threatened litigation,” and allows parties to consider factors such as the nature of the issues, the party’s experience with similar issues and the amount in controversy when determining the scope of the preservation obligation. Id. at 17-18. According to the Joint Committee, the proposed rule would “allow parties to undertake a good-faith analysis of their litigation risks and use a sliding-scale approach to preserve ESI.” Id. at 18. Parties would thus be
Updateable to consider the scope of the potential litigation as well as the likelihood that it will reach the discovery phase when determining their preservation obligations. Id.
Scope of Production
Once discovery is underway, disputes often arise over the scope of what must be produced. What should litigants and courts look to in order to determine the proper scope of production? The CPLR does not specifically address the scope of production. Some New York courts treat the production of ESI just as they would the production of paper documents. For example, the court in Etzion v. Etzion, 7 Misc. 3d 940, 943 (Sup. Ct. Nassau Co. 2005), likened a computer to “a filing cabinet” and required the restoration of deleted data. Other courts have considered the special problems inherent to ESI, and have placed more weight on the burden the producing party will have to bear. For example, in Lipco Elec. Corp. v. ASG Consulting Corp., 4 Misc. 3d 1019(A), *21 (Sup. Ct. Nassau Co. 2004), the court recognized that unlike paper documents, electronic “records are kept not because they are necessary but because the cost of storage is nominal,” and that, “electronic records are not stored for the purposes of being able to retrieve an individual document” but “to permit recovery from catastrophic computer failure.” Thus, the court concluded that “retrieving computer based records or data is not the equivalent of getting the file from a file cabinet.” Unlike the CPLR, the FRCP was amended in 2006 to address issues specific to ESI preservation and production. The Joint Committee has proposed that the CPLR be similarly amended to address the role of ESI and to provide guidance to potential litigants. The proposed rule would incorporate language from FRCP 26, as well as from the Sedona Principles, and would focus on three problem areas: accessibility, duplicativeness, and proportionality.
With regard to accessibility and the high cost of recovering ESI from back up tapes and other data recovery systems, the Joint Committee proposes that the CPLR adopt the language used in the FRCP to limit the scope of ESI production. The rule states that parties “need not provide discovery of electronically stored information from sources that the party identifies as not reasonably accessible because of undue burden or cost.” FRCP 26(b)(2)(B). The FRCP goes on to note that a court can order the production of such inaccessible data for good cause. The Joint Committee also proposes adopting the FRCP’s advisory notes, which provide examples of inaccessible data, including “back-up tapes intended for disaster recovery purposes . . . legacy data from obsolete systems. . . [and] ‘deleted’ data that . . . would require [a] forensic specialist for reconstruction.”
Regarding the problem of duplication, which arises from requests for ESI from multiple sources and often results in significant overlap, increased costs, and unnecessary delay, the Joint Committee observed, “if parties are allowed to request e-mails containing a key word from multiple sources at different levels of accessibility, the costs of production could skyrocket without yielding any new information.” The Report at 32. Thus, the Joint Committee proposes incorporating FRCP 26(b)(2)(C)(i) into the CPLR, which provides that a court can limit a discovery request when it is “unreasonably cumulative or duplicative or can be obtained from some other source that is more convenient, less burdensome, or less expensive.” This can be done by motion, or on the court’s own initiative. Id.
Finally, the Joint Committee addressed the issue of proportionality, or the need to balance the importance of the discovery with the burden on the producing party. Both the FRCP and the Sedona Principles have addressed the concept of proportionality. The CPLR has no such provision; however, section 3101 deals with general disclosure obligations and requires disclosure of “all matter material and necessary in the prosecution or defense of an action.” Id. at 20. In determining proportionality, many courts look to this “material and necessary” standard. Id. at 33. The New York Court of Appeals has instructed that the burden on the producing party should be considered; however, not all New York courts have followed its direction. Id. at 34. Thus, the Joint Committee proposes adding language to CPLR 3101 to incorporate the New York Court of Appeal’s decision in Kavanaugh v. Ogden Allied Maintenance Corp. The addition would instruct courts that, “once relevance has been established, competing interests shall be balanced; the need for discovery shall be weighed against the burden to be borne by the opposing party.” The Report at 34-35 (citing Kavanaugh v. Ogden Allied Maintenance Corp., 92 N.Y.2d 952, 954 (1998) (internal citations omitted)).
In addition, the Joint Committee has proposed that the advisory notes to CPLR 3103 be amended to include language from the FRCP. The new language would allow a court dealing with an ESI discovery dispute to consider “whether the burden or expense of the proposed discovery outweighs its likely benefit, considering the needs of the case, the amount in controversy, the parties’ resources, the importance of the issues at stake in the action, and the importance of the discovery in resolving those issues.” The Report at 35. Furthermore, the Joint Committee recommends that courts ensure that production requests are reasonable by taking steps such as ordering “a sampling of requested data, limiting production to identified custodians, “keyword” searches, particular dates, or any other method.” Id. at 36.
Form of Production
Once the relevant documents have been identified, what form should the ESI take? Currently, there are no rules in New York specifying the permissible forms of production, and the Joint Committee does not suggest adding any. Rather, the committee proposes an addition to the CPLR to guide parties through the process of requesting and objecting to the form of ESI that is produced. Id. at 49. The Report recommends amending CPLR 3120(a) based on FRCP 34, to allow a party to specify a production format. Id. at 50. The Joint Committee also recommends amending CPLR 3122 to allow a party to object to the form of production specified. Id. at 50. If a party objects to the form proposed (or if no form was requested) the producing party “shall state the form or forms it intends to use, and shall produce documents in a form that is reasonably usable or the form or forms in which the documents are ordinarily maintained.” Id. at 51. The rule would also provide that “[a] party need not produce the same data in more than one form.” Id.
According to the Joint Committee, “[g]iven the growing sizes of electronic production, the review of such material for privilege will result in mistakes and the inadvertent production of some privileged material.” Id. at 36. What happens in New York when such a situation arises? The CPLR protects as privileged confidential communications between attorney and client, as well as attorney work product and materials that are prepared in preparation for litigation. Id. at 37-38. However, there is currently no provision in the CPLR directing what should be done if privileged materials are inadvertently disclosed. Rule 26(b)(5)(B) of the FRCP, on the other hand, was revised in 2006 to include a so-called “clawback” provision, which allows a producing party to request the return of inadvertently produced privileged materials. Id. at 39.
The Joint Committee has proposed that Rule 3122 be amended to include a clawback provision broader than that in the FRCP. The rule would apply to both ESI and traditional paper documents. Id. at 41. The committee believes that a claw-back provision will minimize discovery costs, as it will allow parties to continue to pursue time- and cost-saving search options with clear knowledge of how an inadvertent disclosure will be treated. Id. at 44. Under the new rule, if a party inadvertently discloses information that is “subject to a claim of privilege or protection,” it may request the return of the data within fifteen days of learning of the inadvertent disclosure, so long as the party took “reasonable steps to avoid disclosure of the material.” The Joint Committee believes this will “compel a party who relies on a privilege or protection to be vigilant in maintaining and/or re-establishing the confidential nature of the material.” Id. at 42. The party that received the information in error must then “return, sequester or destroy the specified material and may not use, distribute or disclose the material until the claim is resolved. If the receiving party distributed or disclosed the information before being notified, it must take reasonable steps to retrieve it.” Id. at 41.
When an inadvertent disclosure has taken place, is the privilege waived? In New York, courts generally employ multi-factor analysis, which balances a number of considerations to determine whether the privilege remains intact. Courts look to the reasonableness of the steps taken to protect the privileged material, how soon the inadvertently disclosing party attempts to remedy the disclosure, and the prejudice to the party to whom the information was disclosed when making their decision. Id. at 47. The Joint Committee recommends incorporating this multi-factor approach into section 3122 of the CPLR, which would apply to ESI as well as to paper documents. Id. at 48.
The Joint Committee did not address the issue of cost shifting in its report. However, it noted that “courts are confronted with more and more cost disputes because the cost of discovery has increased dramatically as a result of ESI,” and that “there is confusion about the presumption” of who bears the cost of discovery in New York. Id. at 5. Rather than proposing a change to the CPLR, the Joint Committee referred to its previously-issued Manual for State Trial Courts Regarding Electronic Discovery Cost-Allocation. The manual is discussed in this issue of the E-Discovery Update (at p.6) in the companion article: “Cost Shifting in New York: Forum Makes All the Difference.”
If enacted, the changes to the CPLR will provide greater clarity to potential litigants regarding their obligations to preserve and produce ESI. We conclude with key takeaways, summarizing the main tenets promulgated in the Report.
- The Report proposes a uniform standard to determine when the duty to preserve attaches. Documentation must be preserved beginning when there are “circumstances which would lead a reasonable person in the party’s position to believe that future litigation is likely.”
- To determine the scope of what must be preserved, the Report proposes using “reasonable and good faith efforts to retain information that may be material and necessary to pending or threatened litigation,” considering factors such as the nature of the issues, prior experience with similar issues and the amount in controversy.
- When determining the scope of production, the Report proposes that litigants consider accessibility, duplicativeness, and proportionality.
- There are no definitive rules for the form in which documents must be produced, but the Report proposes allowing litigants to request specific forms, or object to the form their adversary has chosen.
- In the case of an inadvertent disclosure, the Report proposes that a party may request the document back within fifteen days of learning of its production, provided that the producing party took “reasonable steps to avoid disclosure of the material.” The party in receipt of the information must then “return, sequester or destroy the specified material and may not use, distribute or disclose the material until the claim is resolved.” In determining whether the privilege has been waived, courts will consider a number of factors, including the inadvertently disclosing party’s attempts to remedy the disclosure, and the prejudice to the party to whom the information was disclosed.