CHAPTER 4: CONSEQUENCES OF NOT ADDRESSING THE E-DISCOVERY CHALLENGE – E-Discovery and the Federal Rules of Civil Procedures

CHAPTER 4:
CONSEQUENCES OF NOT ADDRESSING THE E-DISCOVERY CHALLENGE

If an organization forgoes E-Discovery preparation efforts prior to the commencement of actual litigation, the consequences could be severe. Examples include:

• Adverse inference jury instruction: If electronic evidence is not produced in a timely manner, a judge may instruct the jury to assume that the missing evidence would have been ‘adverse’ to the party that failed to produce it. This will greatly diminish this party’s chances of legal success. Two highly visible examples include Zubulake v UBS Warburg and Coleman v Morgan Stanley. The defendant financial institutions in both lawsuits lost their cases due to their failure to adequately produce e-mail evidence, and the resulting assumption that evidence was wilfully destroyed or withheld. Laura Zubulake, a former UBS employee, was awarded $29m in 2005 in her sexual discrimination lawsuit. And billionaire Ronald Perelman was awarded $1.45bn in 2005 based on his claim that Morgan Stanley defrauded him in the 1998 sale of his company, camping goods manufacturer Coleman.7

7 Cory Levine, ‘Deliberating on E-Discovery and the Changes to the FRCP’, Wall Street and Technology Magazine, CMP Media, 13 February 2007.

• Fines and penalties: Delays in responding to a request for information can be costly. In one case, Serra Chevrolet v General Motors, the US District Court determined the appropriate fine for a late response to a discovery request was $50,000 per day. Whilst the fine was eventually reduced, it was replaced by severe non-monetary sanctions.8

• Both: In February 2005, Deutsche Bank AG incurred $10,000 in sanctions and an adverse inference jury instruction for failure to preserve hard drives, audio recordings, and e-mail related to its case against e*Trade Securities.9

In addition to legal and financial setbacks, responding to E-Discovery requests in an unplanned and ad hoc manner can result in significant business interruptions. Resources may need to be diverted from core business functions to litigation support. In order to meet the strict deadlines, the organization may find it necessary to pull valuable resources off critical business projects and place them onto E-Discovery tasks.

8 Roger Matus, Sean True, and Chuck Ingold, ‘The New Federal Rules of Civil Procedure: IT Obligations for Email’, InBoxer, Inc, 2006.

9 ‘Magistrate Recommends Adverse Inference Instruction and Monetary Sanctions for Failure to Preserve Hard Drives, Audio Recordings and E-mail’, Kirkpatrick & Lockhart Preston Gates Ellis LLP, Case Summary, 1 March 2005.