In December 2006, new rules regarding the discovery of Electronically Stored Information (ESI) were incorporated into the Federal Rules of Civil Procedure.  Over the last decade, courts have struggled with issues concerning the storage, handling, preservation and production of ESI.  Court cases addressing failures to properly preserve, collect and produce ESI provide examples of just how costly (in the form of monetary sanctions) such failures can be to businesses.  With the advent of the new Federal Rules1 any business that maintains ESI needs to be aware of the basic requirements of preserving and maintaining such information when confronted by litigation.  Failure to do may be an expensive proposition.

Accountants, whether they be solo practitioners, small offices or regional or national firms need to have at least a basic understanding of these new rules. Obviously, to the extent an accountant finds him or herself as a plaintiff or defendant in actual litigation or merely the recipient of a subpoena for documents, they will have a direct interest in understanding this area.  They can also better serve their clients by sensitizing them to the need to both understand in some detail the client's electronic information storage systems and to carefully preserve and maintain ESI in the event of litigation.

This brief article is not designed to provide a comprehensive discussion of the numerous legal and practical issues presented by the new rules regarding ESI discovery. There are, however, several “Best Practices” concepts that, if followed, can avoid unnecessary costs and stress if, and when, litigation arises.

1 California procedural rules have not yet been amended to require the same degree of formal structure as the federal rules, but good practice dictates a consistent practice regardless of what court system is involved.

FOUR BEST PRACTICES:

1. ACT QUICKLY TO PRESERVE ALL POTENTIALLY RELEVANT ESI.  As soon as a party receives information that litigation may be filed, or in the case of a third party, receives a subpoena requesting production of ESI, aggressive action should be taken to ensure that all potentially relevant electronic information is preserved.  This action is critical to insure that normal document retention procedures are suspended and that all such information, no matter where it is stored, is preserved.  It’s not enough to save one electronic copy of a file on one computer and allow other copies to be destroyed. 
2. ACT QUICKLY TO UNDERSTAND WHAT IS AVAILABLE AND HOW IT IS MAINTAINED.  At the same time you are taking action to Preserve ESI, it’s critical that someone, even an outside third party, be brought in to identify exactly where all potentially relevant information is stored, even in back-up tapes.  A comprehensive understanding is necessary to understand the electronic storage system for a particular business.  Concepts like “metadata” (data about data) and various systems data can provide information about accessing, editing, duration of access and other details that can become important in a litigation context.  Improper handling of the ESI can corrupt this “data about data” information to the disadvantage of a party or a subpoenaed third party.  It’s not just the content of a particular email that can be important.
3. GET HELP QUICKLY.  An unavoidable consequence of the new rules regarding ESI is the likely need to employ outside consultants who are experts in retrieving this kind of information.  For smaller companies without sophisticated in-house Information Technology expertise, the expense of hiring outside consultants will more than pay for itself to the extent later discovery sanctions can be avoided. 
4. BE OVER-INCLUSIVE IN INITIAL PRESERVATION EFFORTS.  Be cautious as you begin to preserve ESI.  If anything is potentially discoverable, it’s best to preserve now and evaluate later.  Just because something is initially preserved doesn’t mean it has to be produced.  

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