Tracking down digital smoking guns

THE BALTIMORE SUN

Brian L. Moffet said he saw the writing on the wall about three years ago. The Baltimore attorney was arguing a national class action suit with 50,000 pieces of paper entered into evidence when the judge asked, "Where are the e-mails?"

That sent Moffet into scramble mode.

"It was the first time I realized it was something that was going to have to be addressed," he said.

More than 90 percent of all new information is created and stored in electronic form, according to the University of California Berkeley. And more than two-thirds of that is never printed at all.

Not since the adoption of the Xerox machine 45 years ago has the centuries-old legal profession been so affected by new technology.

A handful of law firms, including Moffet's - Gordon, Fein- blatt, Rothman, Hoffberger & Hollander LLC - have created units specifically to mine for electronic information and help clients manage it. But experts say many lawyers aren't yet comfortable with hunting for electronic data and may be setting themselves up for claims of malpractice because of it.

"Think about it," said Ken Withers, an attorney at the Federal Judicial Center, the Washington-based research and education arm of the national court system. "If 92 percent of the information is in electronic form, then they're only asking for 8 percent of the information. Obviously, they're not getting a full picture of what's going on."

Recent court decisions have put attorneys and companies on notice by imposing hefty fines against businesses and public institutions that don't properly handle - or hand over - electronic records.

In July, Phillip Morris USA Inc. was fined $2.75 million for failing to keep and produce such data in a case that claimed the company marketed cigarettes to minors. That same month, a New York court instructed a jury to infer that the absence of electronic records could be considered intentional and damaging to the defendants. And a year ago, Baltimore defendants in a housing discrimination case produced 80,000 e-mail messages too late, causing U.S. District Court Judge Paul W. Grimm to refuse their admittance into evidence and preclude some witnesses from testifying.

Electronic evidence "is absolutely explosive in terms of the impact," Grimm said in a telephone interview last week. "At first it was somewhat unusual. But in the late '90s and early 2000, we started seeing a drumbeat of cases" submitting e-mail evidence in particular, which is often more salacious because of its casual nature.

"Discovery" - the technical term for the legal process of collecting evidence and information to try a case - once meant pawing through file cabinets in search of a paper trail. But the explosion of e-mail and other electronic data has complicated the procedure, making it more costly and cumbersome, but also critical. In 2002, New York Attorney General Eliot Spitzer used nearly 100,000 pages of e-mail to prove Merrill Lynch & Co. Inc. analysts were giving stocks false ratings in order to win business deals. Spitzer also used e-mail to prove the same of Deutsche Bank Securities Inc.

"Now, we not only have to sweep files for relevant information. We have to sweep the computers that are relevant, too," said Thomas P. Vartanian, a Washington attorney and a member of the American Bar Association's technology committee.

So-called "e-discovery" units remain largely concentrated among big firms with more resources.

"Lawyers are lagging behind. Very few law firms have addressed this with a system," said Donald A. Rea, who co-chairs Gordon, Feinblatt's Electronic Discovery Practice Group with Moffet.

Without in-house electronic discovery teams, lawyers and companies typically turned to outside businesses for help. The first such companies began on the West Coast in the late 1980s. But it wasn't until a decade later that the new market began taking off, said George J. Socha Jr., an attorney, market analyst and consultant in St. Paul, Minn.

Today, about 160 companies concentrate on electronic discovery. Their total revenues grew to $430 million in 2003 from $40 million in 1999.

Cases involving records mismanagement and accounting fraud - like those of Arthur Andersen LLP and Enron Corp. - have heightened mistrust of corporations by juries, said Lori Ann Wagner, a partner at Faegre & Benson LLC in Minneapolis. Her firm, which developed an electronic discovery task force in 1999, helps clients put policies in place to avoid the appearance of misconduct. But many companies still don't have well-defined or well-reasoned processes.

Last month, a California software company filed a motion in U.S. District Court in Baltimore that claimed Microsoft Corp. purposely created policies to destroy evidence. The plaintiff, Burst.Com Inc., contends Microsoft stole its intellectual property and destroyed the e-mail that would prove it. Burst-Com has requested that the judge issue an "adverse inference instruction" to the jury, which permits members to infer that the destroyed evidence was harmful to Microsoft.

Dealing with data is not easy for companies or their attorneys. The information is enormous in scope and costly to maintain and search. Word documents have multiple versions, e-mail has replaced telephone calls and it is sent to multiple recipients, embedded data is attached to files, and deleted data is not truly gone until it's overwritten, which could take years. All of it is discoverable, meaning millions of pieces of information might come into play.

And right now, there are no universal rules governing the electronic discovery process, though various groups have offered guidelines. A few states - Delaware, Wyoming, New Jersey, Kansas and Arkansas - have implemented rules, but some experts complain of a lack of uniformity.

"The volume of electronic information is much higher than anything we ever imagined in the paper world," said Withers of the Federal Judicial Center. "Computers generate far more than humans are capable of comprehending."

The Judicial Conference of the United States - the policy-making body for the nation's court system - has proposed amendments to the federal Rules of Civil Procedure that specifically address electronic discovery. The proposals have been presented for comment, which ends in February, and would not take effect until December 2006 at the earliest.

The proposals would require attorneys to lay ground rules for electronic discovery early on, help decide who pays for what, add options to pull back privileged communication mistakenly handed over, and ease the burden of production on some defendants by asking only for easily accessible documents.

Among the possible changes is a new definition of what a "document" is: It could include an entire computer and everything on it.

Law schools are trying to train the next generation of lawyers to think in such terms. While most students are familiar with the Internet and tech toys, "trying to harness all of that recreational knowledge and turn it into professional expertise is a challenge for all law schools," said Theresa K. LaMaster, assistant dean for technology affairs at the University of Maryland School of Law.

Technology in general has had a huge impact on the practice of law. Lawyers file cases electronically, communicate with clients online and at times present evidence and accident-simulations with computer animation that rivals Hollywood's.

Socha said he expects to see more and more law firms taking on electronic discovery themselves.

"It will be very much like what we saw in 1998 and 1999 with Y2K. All of a sudden, it seemed like every major firm in the country had a Y2K practice group. I get the impression the truth was they just slapped a new label on the same group of people," he said. "As a consumer, you will need to look closely to see what real expertise the law firms have. ... This is still a very young market. It's the wild, wild West of discovery."

Key 'e-discovery' cases

In 2000, a New York federal judge concluded that attorneys for Wal-Mart Stores Inc. improperly allowed destruction of pertinent information and ordered the retailer to recover the data and pay any fees the plaintiffs incurred in litigating for the missing information.

In 2002, after deciding Dell Inc. was not forthcoming with electronic data, a judge allowed the plaintiff access to all e-mail of Dell's key personnel.

In February, a Minnesota judge in a sexual harassment lawsuit found the defendant's destruction of data on her computer's hard drive was intentional. The judge gave jurors an "adverse inference instruction," meaning they should consider that the missing information would be detrimental to the defendant.

The former Arthur Andersen LLP, Enron Corp.'s accounting firm, was convicted in 2002 of obstructing an SEC probe by shredding documents, purging hard drives and erasing e-mail.

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