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Sloppy e-discovery can cost you millions
By Joanne CummingsYour company has been hit by a lawsuit. Do you know the whereabouts of all its electronically stored information?
Lawsuits are a fact of life for organizations today. Recent surveys show that the average U.S. company faces 305 suits at any one time; that number jumps to 556 for companies with $1 billion or more in revenue.
With each lawsuit comes the obligation for discovery -- production of evidence for presentation to the other side in a legal dispute. In the past, this evidence consisted primarily of paper records, such as contracts, bills of sale, printed correspondence and so on. However, with the rise of the New Data Center, 95% of all business communications now are created and stored electronically. That places the focus on e-discovery: finding and managing electronically stored information (ESI).
"It makes sense," says Gregg Davis, CIO at Webcor Builders, a construction firm in San Mateo, Calif. "Before five years ago, we never allowed change orders or changes in price or scope to happen through e-mail; everything was signed and faxed and kept on paper. But now, everything we do is e-mail. It's our primary tool for business documentation. Now 90% of everything we do here is done electronically."
That puts a heavy burden on IT, says Browning Marean, partner at DLA Piper, a global law firm. "If it's digital and it's relevant, it's discoverable. So it all has to be found, preserved and examined," he says. "And IT plays a key role in that because it is the keeper of the information -- it knows where and how information is stored, and IT is the one that has to find and present it."
New ground rulesIn the U.S. court system, the onus of ESI discovery took on new weight on Dec. 1, 2006, when amendments to the Federal Rules of Civil Procedure (FRCP) went into effect. The new rules, which govern suits filed in federal court, specifically outline an organization's rights and obligations in e-discovery. The FRCP amendments apply to all organizations, public or private.
"With the amendments to the FRCP, the courts are saying, 'We know the technology exists to do this stuff. We want to see you take some reasonable steps to put processes and technologies together to do e-discovery. And if you don't, we're really going to hold you accountable for it,'" says Barry Murphy, principal analyst at Forrester Research.
He cites the recent case of Morgan Stanley vs. Ronald Perelman, in which Perelman charged the investment firm with duping him into believing Sunbeam -- for which Perelman was accepting stock in a buyout offer -- was financially successful. Morgan Stanley was hit with a $1.57 billion jury verdict, which hinged primarily on the company's lax e-discovery procedures. "The courts are saying that there's no plea to ignorance here. The rules are there to be followed," he says.
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