Federal Rule of Evidence 502 and the Bankruptcy Lawyer

At long last, proposed Federal Rule of Evidence 502 has been introduced to the Senate as S.2450. In a nutshell, FRE 502 is intended to reduce the likelihood of waiver of attorney-client privilege and work product in an age where even simple litigation can involve thousands of "pages" of documents, meta-data and data-enabled doughnuts.

Over the summer, I had an article published by the Bankruptcy Section of the State Bar of Texas concerning the proposed rule called: Bankruptcy Secrets and the Proposed Federal Rule of Evidence 502. Some of the highlighted concerns originally covered in that article are alive and well in S.2450.

Without reproducing the article (the link above should be good), the overriding purpose of the proposed rule is purportedly the protection of the attorney-client privilege while controlling the spiralling costs of litigation due to electronic review necessary to protect privilege. Without naming names, there are those outside of the profession (and perhaps inside the profession) that view the bill as an Omnibus Lawyer Malpractice Shield... and Consumer Protection Act. For the foreseeable future though, it is likely that the Rule's cost savings in document review is likely to be eaten up by the cost of litigating (again) if waiver was intentional or disclosure was inadvertent.

As my article also notes, there is cause for concern as to what exactly the Rule will protect for a disclosure "made in a Federal proceeding or to a Federal office or agency...". Will this include disclosures made to creditor's committees? What about PACER filings that the transmitting counsel believes is redacted, only to find that 12 year-olds have stopped fixing blinking VCR clocks and have moved on to bigger and better things?

Another interesting, though perhaps academic, point is FRE 502(d) regarding court orders and protection of privilege. The rule specifies that a court can order that "privilege... is not waived by disclosure connected with the litigation pending before the court...". In my single failed attempt publish a law review article regarding bankruptcy shortly after the Seminole Tribe opinion was handed down, I reviewed numerous opinions, articles, and bathroom wall graffiti parsing out the true nature of a bankruptcy proceeding as anything other than litigation.

There are also some interesting issues regarding the Rule's interplay between state and federal "proceedings", but those we can leave for another day.

What ought not be left unsaid is what effect the rule may have in terms of the time and attention attorneys give to meeting their ethical obligations to protect and hold dear the secrets of their clients. Just because the new rule may may provide some added protections for the attorney-client privilege, does not necessarily mean that the fundamental relationship between the attorney, the client and the client's secrets has changed. Assuming the rule is elevated to the status of more than just a bill, it ought never become a crutch in taking adequate measures to protect the client's secrets.

Friendly Reminder about Bankruptcy Rule 9037...

Now that December 1 has come and gone, and another set of amendments of the Federal Rules of Civil Procedure has become effective, time for a belated reminder that Bankruptcy Rule 9037 has been adopted. For those of you who, like me, have been too busy filing amended pleadings to replace outdated Official Forms and creating notice pleadings for small business case financial disclosures, it is time to turn your attention to 9037.
Rule 9037 mirrors many federal court local rules, and existing statutory law in many states, regarding the filing of record or other disclosure of individual identifying information such as social security numbers, year of birth, account numbers of financial accounts, and the names of minors. The reasons for the rule are obvious, but the the long-term implication for lawyers, commercial clients, and any user of "data-enabled" forms should not be overlooked, as the story below makes clear.

Have a Happy Friday.

The Mitchell Report: Moral Bankruptcy and MLB

To my surprise, the release of the Mitchell report is clearly pulling readers away from this site. Here is the link to the report.

As a matter of geeky interest, there are at least three instances where electronic documents are referred to. Apparently the investigators received 20,000 electronic documents from the Commissioner and from offices of the individual ball clubs. The Player's Association is reported to have declined to produce any documents, digital or otherwise. DLA Piper and FTI Consulting were hired to handle the electronic document review. Lucky Bastards.

In related news, my beloved Rangers (only slightly scarred in the report), still don't have any pitchers.

Trustee "Smart Form" May Become Data-Miner's Smart Bomb

I have been sitting on this one a while, but when ALM and ABI picked up the story, decided it was worth a few electrons in this forum.
In at least the last 2 years, the Administrative Office of the U.S. Courts and the United States Trustee has been working on an initiative to develop and implement standards for the use of "smart forms" or "data enabled" forms for the use in debtor bankruptcy filings. According to a Request for Comments dated June 3, 2005 and submitted by the AOUSC and USTP, a data enabled or smart form is a .pdf document that is filled out on-line, and then "saved as a PDF file containing data tags that are not visible to the user, but which 'mark' each piece of data entered into the individual fields on the form with a tag."
What this really all means is that the information captured in a petition, schedules and presumably statement of financial affairs allows anyone with the right electronic toys to assemble and aggregate the information entered into each of the active fields in the smart form into a data base or other repository without having to re-type or manually re-process the information.
The ability to rapidly access and assemble this data can be invaluable to the courts, trustees, administrative personnel, and creditors. The concern is that the ability to rapidly access and assemble this data can be invaluable to otherwise disinterested third parties who may find other, potentially nefarious uses, of the information.
This initiative, originally set to kick in on October 17, 2005, has been subject to fits and starts without really gaining much momentum. The primary barrier seems to be the reluctance of vendors to dive into this project without the use of the "smart forms" made uniformly mandatory throughout bankruptcy courts. A September 23, 2005 Memorandum to bankruptcy petition preparation software companies included a sample "data enabled" petition, also lovingly referred to as Official Form B1.
Software providers were assured that CM/ECF "as-is" would accept data-enabled forms. Providers were also informed that the foundation for this project would be something called Adobe Acroform filed and value (F/V) tags. In the June 2005 call for comments, the AOUSC and the USTP noted that the PDF/A, the interim filing format in place for CM/ECF was supported by PDF v. 1.4, but that it did not follow the "current industry trend towards XML tags", which is supported in "PDF/A version 1.5 or higher". The gubment cites its desire to move in the opposite direction of the rest of the world in order to "ensure all CM/ECF PDFs are compatible with the long term archival of digital records." I don't know what this means either, but remember this because it adds to a later plot twist. From a vendor standpoint though, it sure sounds like the software vendors don't have the desire to expend time and resources to develop a software tool based on standards and a format that only a small segment of its customers will be using, that are not used by any other end-user, for a profession notorious for changing nothing until and unless forced to do so. Sort of the equivalent of making GM produce a car that runs on eggshell fuel, at a time when the government has not yet required chickens to lay eggs with shells on them.
An undated posting on the website of the AO's office regarding the proposal seems to confirm these suspicions. A significant case is made by the author of the posting, for an XMP - metadata approach; and by attribution to Marty Mohr of E-Z Filing, that an XML-type standard be adopted.
Clifford J. White III, who must have a largely thankless job, has championed the benefits of fast-forwarding the use of smart forms. In an April 26, 2006 statement to the House, White explained that the "data-enabled" function would assist the US Trustee in conducting studies mandated by BAPCPA. White explained that implementing the program would allow the Trustee to use the data or analyzing the means test, selecting cases for targeted debtor audits, conducting the aforementioned studies, reporting to Congress and processing cases more efficiently. White also stated that the use of data tags in the smart form could be saved into the "industry standard Portable Document Format", so that the resulting document has search able data. The April 2006 statement is silent as to the PDF/A v. XML issue.
In September 2006, the Advisory Committee on Bankruptcy Rules met to consider, among many other things, White's suggestion that the use of the smart forms be made mandatory. The minutes reflect that White provided copies of a letter to James Duff, Director of the Administrative Office indicating that the technical standards were "set", but that the software vendors weren't likely to get on board unless the use of the forms was made mandatory. At that time, the minutes reflect that only one of the vendors had indicated a willingness or ability to implement the forms. Peter G. McCabe, billed as secretary of the Standing Committee, got a golden star for the session by pointing out, according to the minutes, that the smart form is better viewed as a long-term solution for the data-gathering requirements, and further indicated his belief that there were still some unspecified problems with the technical standards. Eventually, the committee passed a "sense of the committee" motion that all necessary steps be taken to advance the cause of data enabled forms. (I think I will screen print and sell some catchy t-shirts advocating for the "cause of data enabled forms... order now to beat the Christmas rush).
In December 2006, and in relation to BAPCPA, White told a Senate sub-committee that the use of smart forms was necessary to process "a large number of cases with the same efficiency in the future as we have over these past 12 months." This ability is threatened by "the fact that the courts have not yet mandated" the use of the smart forms. That individual courts have not mandated the use of smart forms is a legitimate concern, given that they apparently have the authority to do so under federal bankruptcy rule 5005.
In July 17, 2007, White broached the issue again in relation to a House sub-committee hearing on working families, medical debt and bankruptcy. White pointed out, correctly, that the use of smart forms would allow "researchers and others" to identify cases involving high medical debts, domestic support issues and would allow debtors to know sooner rather than later whether the UST would sling down the cursed "presumed abuse" lightning bolt. Bigger picture, according to White, the smart forms will provide more information as to the effectiveness of the system as a whole.
More recently, on October 2, 2007, White told a House sub-committee in an oversight hearing that the UST has developed or enhanced automated systems but stressed the continued need for the mandatory use of smart forms. To his credit (although this is the first public mention I can find of this issue), White did indicate that the mandatory use of such forms ought to be subject to "appropriate privacy and access concerns." Although I didn't pony up the the $15 for access to the ALM online article, it is the privacy issue that is of great concern to those watching this process. It is precisely these undefined privacy and access issues that need to be sorted out for the protection of individual debtors, their families and the attorneys they employ.
Many readers may recall the debacle that ensued after attorneys for a Roman Catholic church diocese filed "redacted" electronic filings that a clever reporter was able to work around and discover information that was supposed to have been kept under lock and key by debtor's counsel. The smart form may be the second generation of this type of problem for all bankruptcy lawyers. By and large, we already don't understand the electronic processes that guide us and surround us (just like the Force). Filing .pdf documents through PACER is currently something of an innocuous process now, but all bets are off once we start uploading data that can be mined, sifted, soiled, bundled, packaged, and re-sold. With the exception of the smattering of lawyers that truly understand metadata, no one that I know of has really voiced any opinion on the potential ethical issues and related dilemmas that will surely follow the implementation of smart forms. While there is no question that White and the good folks at the UST have it right that the smart forms ought to implemented, the "when" of the implementation is the real question; and "now" is probably not the correct answer.

Forget Sub-Prime: The Real Action in E-Bankruptcy may be the Struggling Adult Industry

A recent article in Conde' Nast Portfolio.com, written by Claire Hoffman details the financial struggles of the heavy-hitters in the adult industry, such as Vivid Entertainment, as a result of the growing phenomenon of free Internet pornography. According to the article, the adult industry, which hit its peak with the advent of the VCR and later the DVD, is now facing spiraling losses from sites such as YouPorn (the illicit cousin of YouTube), who are giving away what companies like Vivid are accustomed to selling.

One particular focus of the article, and lord knows you have all been reading this far just for the article, is the see-saw dilemma faced by content providers like Vivid faced by the "on-line freebies" of YouPorn type competition. On the one hand, free content sites can present a demonstrable threat to the bottom line of a more traditional content provider. To shore up these losses, or along the lines of an "if you can't beat them, join them" strategy, free content, user-generated content, and social networking sites have been gobbled up by the highest bidder. The real trick is figuring out how to monetize a site that users quickly become accustomed to as free. The Portfolio article indicates that YouPorn traffic was likely to pull in 15 million unique hits in the month of May, 2007 (surely E-Everything is just as provocative...?), resulting in a potential market that is just too damned big to ignore. Even as the current business model evaporates just as quickly as it developed, simply purchasing, or weathering the onslaught of the "free peeks" by YouPorn won't save the traditional content provider because there already exist other free sites that likely are growing almost as quickly as YouPorn; and in the E-Everything age, there is an entire generation of programmers sitting in their Mom's basement right now working on the next generation or application of technology likely to unsettle existing industry players.

While far less intriguing than the adult industry, technology is roiling media and content providers nearly across the board. One need only watch a Letterman re-run tonight, given the Hollywood Writer's strike (Power Brothers!) to see the effects.

Long time readers (thanks Mom) will recall that all I wanted for Christmas last year was the new Sony Reader, which is essentially an electronic platform for books old and new. Now that Harry Potter is married with children, speculation is running high that the publishing industry is coming out of remission and may be back on death's doorstep. If I can just get my novels finished and named as selections for Oprah's Book Club before she finally packs it in, life will be grand. In the mean time, the Sony Reader chugs along in a bit of obscurity. E-books are cheap and quickly downloaded, and more and more books are becoming available for free through Project Gutenberg. Given the prohibitive price of the Reader, and the relative ready access to e-books on the cheap, the publishing industry may indeed have something to fear. Why would I spend $6 for a cheap paperback classic at Barnes and Noble when I could have the same thing for free on my Blackberry?

The most dramatic battles may just be opening in the music industry. After years of falling CD sales (oddly, occurring in the same years that the music industry has produced a great deal of aural crap), the artists are starting to figure out for themselves how to cut out the middleman and go straight to their market, even employing market forces to set the value of the end product. The recent free release of Radiohead's latest album may produce the death knell for the music industry. For my own part, this is the same industry that, nearly from its inception, ripped of and exploited an entire generation of Blues musicians, so they won't find much sympathy in these quarters.

Cold weather is coming to North Texas. I believe I will hunker down with a tub of popcorn, download some free content, and ponder the solvency of the entertainment media...

Trouble at E-Trade Proves that Sub-Prime Woes Rankle E-Paradise

Recent conjecture that E-Trade may be forced to file bankruptcy as a result of the continuing sub-prime mortgage fiasco shows that even "e-commerce" is vulnerable to exposure. Outside of foreclosures and shocking re-adjustment of ARM's, this may be the first evidence of direct impact on individuals.

Hawaiian Airlines Bankruptcy: Issuing a "Litigation Hold" May not be Enough when Rogue Employee Destroys ESI

Mesa Air Group, a party in bankruptcy litigation with debtor Hawaiian Airlines (HA), got an ugly pre-Halloween surprise from the bankruptcy court hearing the case. According to the the recent opinion in Adv. Proc No 06-90026, and currently being reported as 2007 Bankr. LEXIS 3679, a single, highly placed employee within Mesa Air set about to wipe ESI from several hard drives. In one instance, the destruction took place immediately after a hearing wherein the judge questioned the credibility of the employee. While the debtor predictably obtained the adverse inference finding, this opinion ought to be reviewed as a precautionary tale for counsel who believe they have done their part by issuing a litigation hold. (Also hidden in this opinion is a lesson for those who believe Confidentiality Agreements to the exist as the "end all and be all", but that is a subject for another day).

The court's opinion offers up the following timeline:
HA filed it s Chapter 11 in 2003. In the process of searching for post-petition investors, HA provided passwords to prospective investors allowing them to access the now ever-present "data vault". The ESI in the data vault was capable of being downloaded by those accessing the information. The Debtor required confidentiality agreements, as much of the data was viewed as being "competitively sensitive", required the destruction of the information at a time certain, and prohibited any use of the information except to evaluate the investment. Mesa later became a direct competitor of HA, leading HA to claim that Mesa had breached the confidentiality agreement, allegedly using some of HA's information as its own.

According to the opinion, Mesa's CFO signed a CA, accessed the data vault, and downloaded several electronic documents. The CFO had 2 laptops issued by Mesa, and a computer at home. According to the court, the CFO also happened to have software called System Mechanic Professional, which includes a feature called DriveScrubber2. (In the near future, law professors will quip that any opinion that includes references to things such as DriveScrubber, DataAssassin, FrankenFile or Mac-Daddy Drive DooDoo means someone is getting sanctioned).

Shortly after HA filed its complaint against Mesa, counsel sent a litigation hold via email to the CEO, CFO and COO. According to the court, in late February 2006 the CFO began searching (unbelievably, via email communication) for software to delete files and make it look like they were never on the target drive. A week later, CFO certified to the court that he had downloaded the information from the data vault to a CD, but never to his hard drive. CFO also certified that he never shared the information shared on the CD.

Fast forward to June 28, 2006, when HA seeks a preliminary injunction after finding a draft offering memorandum for Mesa investors that appeared to copy portions of an HA information memo, verbatim. Apparently, the CFO also forwarded portions of HA's memo to Mesa colleagues, stating that Mesa's offering memo needed to "be more like the attached."

According to the opinion, on July 16, 2006, the CFO wipes the hard drive and changes the clock on one of the laptops to conceal any misdeeds. A second declaration was filed by the CFO on August 7, indicating that some previous testimony was incorrect, but no wrong-doing occurred.

On August 8 during a hearing, the court apparently voiced some "concerns" about CFO's credibility, to the extent that the opinion indicated that the CFO commenced to wipe the drive on the second laptop beginning that very day, and continuing until Mid-September. Once again, Daylight Savings came to a premature end in Hawaii, as the CFO changed the clock in this laptop as well.

Between January and April 2006, the CFO apparently also deleted files from the "H drive" of the company servers. Mesa was able to salvage the "H drive" information through tape back ups.

Borrowing from the "What the Definition of Is, Is" playbook, the opinion indicates that someone argued on behalf of Mesa that the only scrubbing taking place was done to remove "adult content" from the laptops as well as the H drive. It seems there was some testimony regarding "adult content" in 2003 or 2004, but the court found no credible evidence that expunging some nebulous adult content was the purpose of the scrub down in 2006, unless of course someone had some fetish that they disguised as "Hawaiian Airlines"...

Aside from the fact that someone in the food chain decided, as between dirty pictures and dirty deeds, that dirty pictures are the lesser of two evils, the opinion is fairly uneventful. The opinion does serve as a quiet reminder that simply issuing a litigation hold, then sitting back and waiting for IT to save the company is simply not enough. On pages *14 and *15, the court suggests that Mesa could have taken "reasonable steps that would have prevented, or mitigated the consequences of... destruction of evidence." One such step would have been creation of backups of the laptop drives and the H drive after the adversary was filed. (Apparently the tape back ups were only good for January 2 and April 6, 2006...). The court declared that simply instructing employees to preserve evidence and trusting them to comply was not adequate, and that instead, "Mesa could and should have taken reasonable steps to prevent all of its employees from doing wrongful and foolish things, like destroying evidence...". While the court is careful to point out that CFO acted alone, Judge Robert Faris also made it clear that Mesa "facilitated" the CFO's misconduct.

What duties might counsel have beyond issuing a litigation hold, working on the assumption that a corporate client will be looking to counsel for advice as to how to avoid a "dirty deeds" opinion? Unfortunately, the opinion does not address whether or not Mesa had a document retention/destruction policy, whether or not such a policy was followed, or what items might be incorporated into such a policy to mitigate the actions of a rogue employee. Even in the absence of a policy, the opinion does not address what steps, if any, Mesa may have taken prior to June 2006 to prevent or mitigate the consequences of such misdeeds. The opinion does not delve into (nor do I recall ever seeing an opinion that did) the administrative permissions at the server level that allow an individual user to delete documents.

Given the constant state of flux that inevitably follows the development and implementation of technology-based business applications, it is likely that opinions like this will become increasingly fact intensive. Rather than rely on an increasingly well-informed bench to discover the correct answer, counsel must shoulder the burden of understanding the client's digital enterprise. This means finding, and learning, the client's document retention policy. This means identifying the potential information holes. Yesterday's smoking gun email is today's "personal" Internet-based email account. The media roundly criticizes, and rightly so, when the government loses laptops chock-full of military secrets; for the lawyer, not knowing how many laptops a key employee may have, or as in the K-Mart case, which former employees still have data, is just as damning.

Increasingly, corporations will be forced to face choices such as allowing email to stored at the user level, or the ability of an individual user to delete documents off of the companies shared servers. Not only will counsel need to have some minimal technological skill to contribute to that process, they will have to translate that process to the bench in order to avoid similar Halloween surprises.

State Bar of Texas Displays Technological Dominance Through Recently Announced YouTube Contest

My friend John Sirman and his cohorts at the State Bar of Texas continue to amaze me. Earlier this year, the Texas Bar was the first bar organization in the country to offer its own on-line social network, known as Affinity Circles. This has already been a great tool for me to increase readership of this blog, to locate local counsel in other areas, re-connect with old friends, and develop new relationships.

Now the Texas Bar is taken a step farther into the territory that no bar association as tread before with the announcement of its YouTube contest, "Lone Star Stories: Texans on Justice". According to an email announcement from Sirman, the "contest is intended to give all Texans a venue to share their vision of the promise of Justice for All."

Two winners will be selected, (1)18 and younger and (2) Over 18. The youngster gets a $2500 scholarship, and the oldster gets $2500 cash. Both winners get an expense paid trip to the January State Bar board meeting in Grapevine, Texas. Deadline for submission is Dec. 15.

Rules, entry forms, and parental permission slips can be found here, and additional information can be found here.

I think this is a phenomenal idea, and applaud Sirman, State Bar President Gib Walton, and everyone else who had a hand in putting this together. Since I am still bitter about not being selected as a finalist in the Bar's short story competition last year, don't look for me to enter a video, but I have lots of creative children that need some scholarship money...

Fulbright Litigation Survey Highlights E-Discovery Issues

Our Biglaw friends at Fulbright & Jaworski have released their 4th annual Litigation Trends Survey (available here) which on its own is something of an interesting read. The more interesting tidbits relate, of course, to the respondents' views on E-Discovery.
According to the report, an incredible 70% of the respondents indicated that "...e-discovery as the subjects of motions, hearings or rulings in the past year remain a rare or nonexistent event...". This apparently was no change from 2006 when the issue was first raised in the survey. Two recent cases, one federal and one in Texas state court, may reveal in part why this is the case. In the former, litigation related to a bankruptcy case, opposing counsel kind of, sort of, sought to obtain ESI as part of its document request. Those who shall remain nameless fumbled around with the electronic part of the definition of a document like a freshman frat boy fumbling with a girdle. Pseudo co-counsel, a far better lawyer than myself, waited until two days before the production deadline to find out what she may, or may not, have to produce, and in what form.
The latter case involved some post-judgment discovery shenanigans in state court. One of the increasingly popular theories in Texas, for a number of reasons, is that of alter ego (it's not just for breakfast anymore). It stands to reason that the discovery related to alter ego would necessarily give opposing counsel pause to at least consider seeking electronically stored information. Especially given that the Texas Rules of Civil Procedure have made provisions for the discovery of "electronic or magnetic data" since at least 1999.
E-Discovery vendors must be rejoicing, and planning on a Merry Christmas indeed, as the survey also reflects that third party vendors are being utilized by 51% of respondents, as opposed to 37% of respondents in 2006. Law firms seem to be content playing second fiddle to the vendors, as only 30% of the firms surveyed reported having special technical expertise, an increase over the 26% so reporting last year. One additional tidbit, is that significantly more companies have retained, or considered retaining, either national or regional counsel to handle specific e-discovery issues.
As for the use of third party vendors, the obvious concerns include the cost of such services and the protection of attorney-client privilege. But there are less obvious concerns, that potential customers and their attorneys, ought to be aware of. At the outset, the only meaningful way to take part in the process is for the end-user to understand what it is they are getting for their buck, and having realistic expectations about the outcome. I recently read an article, perhaps one of Craig Ball's, indicating that current approaches to term search may be only 80% effective. Given that the survey keys in on suits involving $20 million or more, 80% is more akin to the adage about horseshoes and hand grenades.
Even more important than the client understanding what the vendor is doing, is the vendor understanding what the vendor is doing. There is concern that a sub-group of e-discovery experts in the industry are really only experts at picking out software packages with all the pretty lights. There are a growing number of published opinions that make passing reference to "established protocols" among "computer experts". Just because I can light and smoke a cigar does not make me an expert in cigars. If I tried to roll a cigar by hand, all I would have at the end of the day would be a handful of mashed up leaves and a serious nicotine overdose. I have written an article (soon to be published in an ABA newsletter) regarding the application of Daubert to e-discovery experts. There appears to be a growing trend of courts expecting the "computer experts" to know what it is they are rolling, and how it is getting rolled.
The survey results also give an interesting look into the level of risk corporations are willing to take on in order to allow their worker bees to use technology. For instance, 72% responded that they allow employees to access company networks from home. 54% have the luxury that even I don't, the use of instant messaging. Interestingly, only 24% allow employees to attach documents to IM's. 48% allow the use of "outside email accounts" from company computers. 40% retain their voice mails, and an equal number utilize technology allowing voicemail to be emailed to others. For all the blather being published in blawgs and newsletters alike, for all the headlines and the lawsuits by the states' Attornies General, only 40% of the companies responding have a Chief Privacy Officer.

Although it would have been nice to see more data on retention periods, the survey also reflects that the median retention period is 60 days. The industry pack-rats, those tending to keep data more than a year, are real estate and technology/communications.
Respondents also reported some interesting numbers related to the costs of privilege review. 30% indicated that their privilege review costs only consumed 6-10 percent of litigation costs. 16% of the respondents reported, however, that privilege review ate up 30-50 percent of litigation expense. That line-up includes, in descending order, technology/communications, energy, health care, and financial services.
At the end of the day, 27% of the US respondents indicated that the 2006 FRCP Amendments actually made it more difficult to them to address ESI obligations in federal litigation. 60% indicate the amendments had little effect.
Bankruptcy counsel would be well-advised to take a look at the Fulbright & Jaworski survey findings. Even though the subject matter is litigation, the survey also approaches the issues as a function of the business of its clients. Sounds a little like what Chapter 11 lawyers are increasingly called upon to do...

Bankrupt SCO Group Looks Inward for Future Revenue

The recent bankruptcy of SCO Group seemed to bring a mirthful grin to the ultra-techy legal geeksters among us. Given the forces that drove SCO Group into Chapter 11, and the future problems that the company may face in terms of ever generating a dime of revenue or goodwill on its future UNIX products after the LINUX fiasco with Novell (and a host of others), makes the reliance on existing talent a bit of a surprise. I hope all those clever estate planners who patent their legal advice take note of SCO's dilemma...

Will the Coming Flood in Commercial Bankruptcies Look Like 0's and 1's?

The piece below summarizes the dearly held beliefs of many bankruptcy practitioners throughout the country: that commercial bankruptcy is about to experience a huge up-tick in its cyclical progression. The continued onslaught of the sub-prime mortgage industry, coupled with $80 oil seems to have everyone on edge. That commercial credit, until recently, had been nearly as loose as the sub-prime mortgage industry, has been a poorly kept secret.

Last week, the Bombay Co. filed for Chapter 11 protection in Ft Worth, Texas. The Bombay bankruptcy may very well be the tell-tale leak in the failing dike from which will spring forth this expected wave of business bankruptcies nationwide. As the next generation of commercial bankruptcy presumably gets underway, the crack staff here at E-Everything will endeavor to watch more dockets and see how, or if, bankruptcy lawyers and judges handle electronically stored information (ESI) in the bankruptcy context. (Understand that comments on the Bombay case will likely taper off based on the involvement and client representation of those lovely folks at Forshey & Prostok that provide me a day job!)

According to my good friends at SiteMeter, this blog has been viewed by at least 2 surfers from the Department of Justice, my good friend Steve Jakubowski, my new friends at Texas Law Blog (who rumor has it will be starting their own podcasts soon), and by my Mom who checks in just to make sure I am not using any untoward language. At the very least, practitioners ought to be acknowledging their client's digital enterprise in Schedules, SOFA's, cash collateral orders, or even in related first day pleadings. However, if lawyers cannot recognize the thinly veiled reference to binary in the title of this post, we still have so far to go...

In the mean time, here is where the rest of the "insolvency press" is focused:

Phoning it in has a Whole New Meaning

The good folks at the recently established Small Scale Digital Device Forensics Journal might have some interest in this development over the summer. Further proof that counsel can never get too far behind the latest technological and forensic developments. Check back here later in the fall for a good article regarding "experts" and ESI.

District Court Jumps in Front of E-Discovery: Maryland Protocol Cooler than the Matrix

A joint bar-court committee, headed up by the obviously talented Magistrate Judge Paul W. Grimm, in the District of Maryland has produced a Suggested Protocol for Discovery of Electronically Stored Information (ESI), which some have referred to in short hand as the Maryland Protocol. The Maryland protocol is available as a .pdf download here.

While the Maryland Protocol apparently has not been formally adopted by Maryland courts, it presents a very complete and technologically sound blueprint for attorneys and courts alike in suggesting parameters for dealing with the 2006 FRCP amendments. Indeed, the introductory section makes clear that the suggested protocol is not a binding document, nor is it necessarily final or complete. From the outset, the tone of the protocol suggests that it is best suited for "run of the mill" ESI cases, and does so without some of the wide-eyed, breathless predictions that even occasionally creep into this blog.

The scope of the protocol is specifically restricted to the "ESI provisions" of the FRCP. The first phrase or term defined by the protocol is metadata ("Meta-Data" in the protocol), and stretches far beyond the trite description of "data about data." Instead, the protocol describes metadata as "(i) information embedded in a Native File that is not ordinarily viewable or printable from the application that generated, edited, or modified such Native File; and (ii) information generated automatically by the operation of a computer or other information technology system when a Native File is created , modified, transmitted, deleted or otherwise manipulated by a user of such system. Meta-Data is a subset of ESI." In a special section designated solely for metadata, the protocol also distinguishes between System Meta Data, Substantive Meta Data and Embedded Meta Data.

The protocol goes on to designate Static Images as the cornerstone for the form and format of ESI discovery. In essence, the protocol establishes up front that the form of production of ESI (unless the parties agree otherwise or unless the court so orders) that ESI should be produced as Static Images in the format of either a Tagged Image File Format (.tif files) or Portable Document Format (.pdf files).

Properly, the first substantive area addressed by the protocol is the Conference of Parties (see Rules 16 and 26). The protocol suggests, against the common current, that the parties might even indicate to the court that no ESI discovery is desired. One interesting suggestion, though reasonably framed, is that on-site ESI inspections be conducted by agreement of the parties, or "in circumstances where good cause and specific need have been demonstrated...". The protocol also allows for the possibility, as many cases have, that on-site inspections be conducted by independent, third party experts.

Another of the protocol home runs is the gentle reminder that "prior planning and preparation is essential for a Conference of Parties...". If this concept isn't quite clear, scroll down and read the three Blue Light Special posts. This planning includes the exchange of information prior to the meet and confer. One of the pleasing suggestions relates to the participation of an "ESI coordinator". An ESI Coordinator, by the way, is one parties' tech guru (not the technical definition within the protocol by the way). The protocol indicates that where one party requests that the other parties' ESI coordinator attend the meet and confer, and the other party agrees, the requesting party needs to commit its justifications for requesting the coordinator to writing. If the court ultimately decides that the meet and confer was unproductive, and was unproductive in part because of the absence of the requested ESI coordinator, that fact may be considered in future sanctions proceedings.

The protocol also addresses such matters as redaction, bates numbering and other more pragmatic concerns that often get overlooked.

The real victory of the Maryland Protocol is the gentle, yet thorough, guiding hand of the "technical consultants" who were involved in developing the protocol. The protocol offers a basic "To Do" list of areas of inquiry and preparation for counsel in approaching ESI discovery. The technical aspects are addressed in a broad, plain language fashion. At the same time, very specific areas of concern are described in enough detail, or addressed within a context such that most attorneys will find significant value an understanding in the protocol.

The three part KMart posts on this blog are replete with examples of counsel not having the benefit of a protocol such as that suggested by the Maryland court. After reading the Maryland Protocol, wise counsel may never again approach ESI discovery in the same light again. Simply put, the Maryland Protocol should be a standard feature of any trial notebook.

Now if we could just find someone smart enough to generate an accompanying Bankruptcy ESI Protocol...!

Blue Light Special in the Boot and Nuke Department - Conclusion

Finally, after detailing Timeline #1 and Timeline #2, comes some of the points to be considered and lessons to be learned from a recent KMart discovery opinion. To be certain, these issues were developing prior to the 2006 amendments to the Federal Rules of Civil Procedure and hindsight is largely 20/20. (Anyone poking around in the archives of this blog knows that there are those, including yours truly, who believe that e-obligations for bankruptcy practitioners arose long before the amendments kicked in). KMart is however, a blueprint for the future, so the points raised here are not intended as criticism of counsel on either side, or of the good judge. Rather, KMart offers some hard learned lessons from members of the pioneering group blazing new trails for the rest of us. Having said that, let the pole-axing and filleting begin...

1)Preserving Responsive Evidence - This item overlaps with a number of others, but in the context of KMart v. Global Property Services, the issue arose after KMart made its first paltry production. After receiving only 66 pages of responsive documents, Global's attorneys apparently corresponded with KMart's lawyers in order to make certain that KMart was preserving responsive evidence, undoubtedly including any electronically stored information (ESI). Given the current apparent trend of bankruptcy judges being somewhat conservative in establishing dates that a duty to preserve arises, potentially adverse parties ought to be quick to pull the trigger in sending out preservation letters, in order to make sure that preservation duties arise as early as possible.

2)Stipulations and Timelines - A July 11 order reflected the parties' stipulation that responsive corporate emails would be produced on July 8, with responsive emails from the individual stores to be produced by July 31. While clearly the attorneys had to have "met and conferred" to the extent necessary to enter into the stipulation, the facts of the case make it clear that the stipulation was ill-conceived, at least as to KMart. There was too much ESI, stored in too many places, controlled by too many people, to have made such a stipulation either reasonable or possible. Even under the new "meet and confer" requirements of the FRCP, the likelihood that such a deadline could have been met is slim. Internally, KMart probably didn't have the horses to fulfill such an onerous burden; and outside counsel may not have had a heavy enough whip hand to keep the GC on course. In any event the stipulation was likely, at the very least, counsel agreeing to something that they really didn't understand. An e-discovery stipulation is not one of those on-line licensing agreements that we all click on without reading, the technical side has to be as well understood by counsel as the legal impact.

3) Determining Corporate protocols for ESI - 6 months after the "friendly reminder" to preserve relevant documents, KMart produced another 83 pages of documents concerning email access and related document protocols. There truly are two sides to this particular coin. By this time, deposition #1 of KMart's IT goon squad should have already taken place. After KMart produced 150 pages (paper documents apparently), and well beyond the stipulated time frame, something clearly stinks in Des Moines. As for KMart, this is the poster child for why counsel must know from day one the breadth, scope and basic workings of their client's digital enterprise. At the outset, such knowledge focuses the minds of GC. Long term, this learning exercise educates outside counsel as to what questions ought to be asked. Otherwise, we don't know that which we do not know.

4) Trigger dates - The KMart opinion has some fact specific quirks which support the trial court's determination of the debtor's trigger date as to when the duty to preserve documents should arise. Depending in part on the existence or absence of a document retention policy, strong arguments exist both in the bankruptcy code and as a matter of public policy, to push the accrual of the preservation duty farther into the past than current bankruptcy opinions seem to do. At best, bankruptcy is sometimes ill-fitted to the FRCP (and the attendant bankruptcy rules). The same documents that are relevant in bankruptcy litigation also comprise books and records, and perhaps property, of the estate. While not necessarily true in this particular instance, it seems likely that the best interest of the creditors will often be best served when the debtor is required to preserve such documents, much like Chicago voters, early and often.

5) Document retention and destruction policies - For any number of reasons, document retention policies may be just as valuable to a Debtor in Possession as the automatic stay. Without re-hashing all of those reasons, the bottom line is that pre-petition, bankruptcy counsel needs to know if the client has a document retention and destruction policy, and if so, what it is and how it works. It might even be a good idea to have the judge say grace over an existing policy post-petition. If no policy exists pre-petition, an early order of business may be to encourage the client to develop a satisfactory retention and destruction policy, and have the court bless that pleading. The answer in some cases has been to include document retention language in cash collateral orders. A satisfactory retention and destruction policy wont fit, and probably doesn't belong, in a cash collateral order.

Specific to the KMart case, and from the IT perspective, KMart employees simply had too much discretion as to the storage locations of their emails. The employees' ability to defeat the automatic purge feature through manipulation of the "date sent" metadata also exposed a hole in the KMart retention policy.

6) Evading the retention policy - In the KMart case, there were at least two storage areas exempt from automatic purging. One was a "public" drive, and the other was the C: drive of each individual desktop or laptop computer. At the very least, this means that employees were largely free to store ESI indefinitely, free of the periodic house-cleaning attempts of KMart's IT department.

7) The Discovery Scourge of Email Grows - Those on the KMart payroll testified that email cannot be stored on the public drive referred to as P:. That ain't true on at least one level. Recently faced with the revelation that 6 years worth of accumulated emails, which were being backed up each night on the Exchange server, was entirely TOO much, I converted all my email folders from closed cases to .pdfs, deleted the emails from their native format, and saved the converted emails to a folder on a different public drive. (Yes, even though the file still resides in the exchange server, I am no longer getting yelped at because my email folder is too large). The point here is, that while email might not be stored in its native format on a separate drive or other location, that certainly would not prevent a target from saving their emails in some other format, and storing them where IT believes they otherwise do not exist.

Microsoft Exchange also creates some additional layers that most attorneys may not be accustomed to considering. For instance, in order to help me wade through the continuous deluge of email, we recently set up my assistant so that she has full access to my firm email. Whereas a common theme in the KMart case was to have individual employees look on their own computers for their own emails, counsel needs to recognize that multiple individuals may have access and control over one person's email account.

8) Model Rules for Model Counsel - Despite the "discount retail" approach that KMart may have made internally regarding Global's discovery requests, outside counsel has many puppeteers to answer to. While the old saw that "The Buck Stops Here" may not apply to counsel's invoices, it still applies to the hardy boys and girls that sign their names to pleadings. While learning about a client's digital enterprise might rank right up there with signing up for a drug-free root canal, it is an increasingly necessary evil that counsel cannot avoid.

9) Hired Guns and Contract Killers - KMart GC first looked to a contract attorney to handle the Global discovery responses. While there may be absolutely nothing wrong with contract attorneys (some of my best friends and neighbors are contract attorneys), it might not be a good idea to turn over an ESI intensive project to a hired gun. They might not know the company structure, culture, or politics so that they cannot get the requisite cooperation from tenured employees. As such, a contract attorney may not have the buy in and commitment necessary to seek and find all the responsive ESI. Worse, they may move on in 6 months, or even in 6 weeks, and a good bit of institutional knowledge is lost.


For all these reasons, and more, the KMart/Global Property opinion serves as a valuable educational tool for those who believe ESI is someone else's problem that is subject to an easy fix. Instead, the KMart opinion should be viewed more like a Clancy novel, in that minor, seemingly unconnected events and oversights can rapidly coalesce into an uncontrolled outbreak of armed litigation.

Discovery Cracker sold to CT Summation

I wonder if Don Imus had anything to do with naming that product...?

Sub Prime Carnage Continues with Lehman Bros.

I hope that, in all of the layoffs taking place, Lehman doesn't can all of the IT folks...

E-Everything... Meet eWorld!

Long time readers know that this blog was intended to be more than just an insomnia curing repository for discussions of sec. 541 of the Bankruptcy Code in the digital era. Those same long time readers (thanks Mom!) also should have figured out by now that music is a big part of the forces motivating yours truly. To that end, E-Everything was placed to see the announcement of the formation of eWorld Properties and eWorld Entertainment, with Russ Regan being the first named to the Board of Advisors for the enterprise. Thanks to the forward thinking and creativity of Russ Regan, and other like-minded individuals, it is now possible for me to obtain a CD quality copy of a Black Crowes concert just minutes after the final encore. One offshoot of this new venture is the Boomerang Media Station, detailed in the story below.

Now if I can just avoid getting sued for using the phrase E-Everything...

Blue Light Special in the Boot and Nuke Department - Part 2

When last we visited our friends at KMart, we reviewed the procedural background and also had a go at the digital enterprise.

Time Line #2

During the 2003 audit of Global's books by KMart, Debtor's management knew that Global was less than happy that KMart had apparently started contacting Global's subs, the very thing KMart was asked not to do. Quoting from the opinion:

"Global is seeing the writing on the wall and realizing that their business with KMart is slipping away.

The only thing we have to be careful of is not using their sub contractors. As the business melts away on them I am certain they will take legal action."

The court, without citing any authority other than KMart's proposed conclusions, stated that "it would be impractical and illogical to hold that the claim filing date triggers a preservation duty." The court decided that the Debtor's obligation to preserve ESI arose sometime after June 19, 2003. As was also absent in the Krause opinion from a Kansas bankruptcy court, the Court did not consider sec. 521 of the Bankruptcy Code, nor did the Court appear to consider any of the elevated standards or duties of a debtor-in-possession. (While your gonna have to wait for the book to see the full analysis, remember that you heard it here first. This type of conclusion ultimately is harmful to creditors, and to the bankruptcy system in general...).

The testimony before the Court indicated that KMart in-house senior counsel was responsible for "helping to resolve outstanding bankruptcy claims..." which included attending to KMart's response to the February 2005 discovery requests. For the first of many bites at the discovery apple, the response was apparently left in the hands of a contract attorney. [ISSUE 9]

It was the contract attorney whose efforts, it appears, led to the initial production of just 66 pages of documents in response to the discovery requests. From the court's opinion, it seems that no one really knows who the contract attorney talked to, or what the contract attorney did, in terms of locating responsive ESI.

When Global appropriately started it's slow burn over the initial production, in-house counsel apparently started spending some summer fun time towards the ESI. According to the testimony, in-house counsel apparently provided no guidance to individual employees as to where they should look within the company's digital enterprise for responsive ESI, because "I don't know where any individual employee would keep their specific information." In-house also testified having no recollection as to telling employees not to delete ESI, nor could In-house recall tee-ing up a litigation hold as to the Global claims.

Finally, in the fall of 2005, In-house involves the IT department in the search for responsive ESI, although the results of that involvement were not reviewed by KMart lawyers until February of 2006 (a full year after the initial request) and were not produced to Global until March 2006 when Global filed its spoliation motion.

The ESI resulting from IT's initial involvement resulted in 1.45 gigabytes of information being reviewed by KMart's counsel, and some additional 456 pages of documents later being produced to Global.

This search however, was limited to the ESI of 25 former employees. By this time, current employees were instructed to conduct their own search of their own ESI. As a related matter, KMart counsel indicated to the court that the first round of ESI review included both the .pst files (email) and the "H-Drive" files. KMart counsel later learned that the first round of ESI included only the .pst files, and not the H-Drive files. According to In-house, KMart had no policy for ESI review of former employees "H Drive" files until October 2005, which was the same month that IT got involved with this proceeding.

More after the break....

The H Drive issues notwithstanding, KMart also discovered that it had other problems related to the care and feeding of its ESI in relation to previous employees. Former Employee proved to be a source of ESI for Global, as Former Employee had at home an old computer that had been replaced by KMart, and that Former Employee had kept after his termination. When he had still been gainfully employed, Former Employee had the ability to work remotely, and also had the ability to download emails onto his laptop. The court pointed out that, had the emails not resided on Former Employee's laptop, they likely would have been automatically deleted sometime in May or April 2003. Despite the auto-delete policy, Former Employee's emails were part of the 456 pages produced in March 2006.

Testimony from existing employees was not much better. Regional Manager testified in February 2006 that his search for ESI was, "Just a search of any documents that I stored on my computer." However, the computer that Regional Manager had apparently been using during some of the relevant time periods was a laptop that had been stolen at Detroit Metro Airport.

Although the opinion doesn't seem to cover what or why, there is some humor in noting that, at some point, KMart had the cajones to file a motion for production, seeking ESI in its native format. The Court granted KMart's motion January of 2007.

In Part 3, one geeky lawyer's opinion on at least 9 fundamental points illustrated by the KMart opinion...

Those Pesky Debtors and Their Technology...

The company in the news piece below, PubliCARD, Inc., develops the "smart cards" that are all too familiar to today's college students. The applications can include cashless cafeteria transactions, tracking attendance, etc. Those attorneys for the Debtors in this case must be pretty folks, being able to wrap their "reorganizing arms" around the technology involved in this case...

Blue Light Special in the Boot and Nuke Department - Part I

I can remember all too well as a child hearing the KMart PA announcement that there was a blue light special in the children's shoes department... the pushing, clawing, and biting... running over poor little old ladies standing in line at those horrid KMart snack bars, leaving in our wake a tangle of wrinkled skin, bent and battered walkers intermingled with Cherry Icees and nacho cheese. Oh, the humanity!

The more things change, the more they stay the same, as yet another KMart special leaves me both breathless and impervious to the immediate short-term safety of any little old ladies that might wander into my path. An opinion in KMart bankruptcy released July 31 is nearly as precious to me as those white metallic Christmas trees with (you guessed it) blue plastic bulbs for ornaments. The opinion is related to certain claims objections as to the claims of Global Property Services, and the opinion (notated as being released for electronic publication only) is being reported at 2007 Bankr. LEXIS 2541. In the interests of full disclosure, William J. Barrett is listed as counsel for KMart in this matter. So far as I am aware, there is no relationship between myself and Mr. William J. Barrett, nor am I aware that he ever experienced the joy of leg-wrestling a complete stranger for the last set of Blue Light special high tops.

The opinion alludes to many topics that I have wanted to discuss previously, but never really had the proper vehicle. So many in fact, that this post may only topically point out those areas of interest, with more in-depth discussions being fleshed out in a more formal forum.

Timeline #1

KMart filed its bankruptcy on January 22, 2002, and it s plan of confirmation was entered on or about April 23, 2003. In June of 2003, Global filed admin claims, and filed an amended claim in September of 2003.

KMart filed an objection to Global's claims in February 2004, which Global responded to in March 2004.

In February 2005, Global served out discovery requests related to the claims objection. Two month later, in April 2005, KMart responded by producing 66 pages of documents. Global corresponded with KMart's attorneys the following week, to get some assurance that KMart was preserving responsive evidence. [ISSUE ONE]

On July 11, 2005, the bk court entered an order reflecting the parties' stipulation that KMart would produce all responsive documents, including e-mail, from the corporate office by July 8, 2005, and from all the individual stores by July 31, 2005. In July 11 correspondence, KMart counsel represented that all the corporate head quarter's documents had been produced. [ISSUE TWO]

By mid-August 2005, KMart had produced 2,614 pages from headquarters. In September of 2005, another 287 pages trickled in. Additional documents were also produced in relation to the subsequent depositions of KMart's senior commercial attorney and from the highest ranking member of management to have dealt with the Global issue before it became an issue.

In January 2006, KMart produced 83 pages of documents concerning, or at least tangentially related to, email access and other corporate protocols. [ISSUE THREE] In February 2006, an additional 5600 pages of documents from corporate were produced. Throughout February, additional depositions led to the production of additional documents.

On March 7, 2006, Global filed a motion for sanctions, for spoliation, to compel discovery and an application to force KMart counsel to wear last season's discontinued line of blue light special off the rack men's suits. Six days later KMart produces more documents, including electronically stored information (or ESI). Included in Global's list of grievances was that KMart had only recently started digging through its own ESI.

One of the issues raised in KMart's response was that Global did not identify a "trigger date" for KMart's preservation duty. [ISSUE FOUR]. KMart argued that the date to trigger its obligations to preserve evidence would not have occurred until February 2, 2004, and that any destruction of documents under its document retention and destruction policy [ISSUE FIVE] would have occurred prior to that point.

The court heard two days of evidence on the matter, April 25 and 26, 2006.

The Digital Enterprise

Global had been acting as a general contractor for KMart nationwide, by coordinating the subcontractors responsible for exterior cleaning and landscaping services, or "white and green service" as referred to throughout the court's opinion. In Spring of 2003, Kmart indicated it intended to do an audit of Global's books, to which Global apparently responded positively, so long as KMart executed a non-disclosure and confidentiality agreement, to prevent KMart from cutting Global out as the middleman and dealing directly with the subs. The agreement was executed March 20, 2003. According to Global, within weeks it learned that KMart's agreement lasted only about as long as the typical blue light special, as KMart was reportedly doing the very thing it had promised it would not. The admin claim that Global filed that same year alleged a $25 million claim against KMart for muscling in on the white and green subs.

At trial on the sanctions motion, a KMart IT employee testified as to the system architecture. According to the testimony, KMart used Microsoft Exchange and 5 email servers. Employees had the option of storing email on the email server, on an "H-drive" that was also a server location. E-mails could also be stored on their local hard drive in their workstation. Finally, e-mail could be stored on any other medium, including CD or sushi-shaped USB drives. [SEE ISSUE FIVE]

Exchange based emails were subject to KMart's retention policies, which included automatic deletion guidelines (i.e. emails in the Inbox are deleted after 90 days). Emails could remain in Exchange longer though, in part through the mere act of moving an email from the Inbox to a user-defined file (the user defined files had 180 day deletion schedules), but also through, well, the mere act of moving an email from the Inbox to a user-defined file (the deletion date was triggered by the "date sent", but when a user moved an email from the Inbox to a user defined file, the metadata concerning that email was changed, and modified the "date sent" parameter). [SEE ISSUE FIVE]

The ESI stored on the H: and C: drives was not subject to any automatic deletion date. [ISSUE SIX]

Part of KMart's document retention and destruction policy is also based on, get this, unwritten, policy. A second IT type testified that the computers of former employees would be collected and stored for 2 weeks in an "asset cage", before they cleansed and recycled by an open source "boot and nuke" utility. Reportedly, boot and nuke over-rights to DOD standards, which makes me wish, just this once, I had the artistic ability to draw a cartoon of the prez wearing boots and a cowboy hat... The computers of former employee's who were identified as being on "legal hold" were stored under lock and key rather than being subjected to boot and nuke (that sounds like a hip, happening new kind of adult beverage).

The court also addressed the steps taken to back-up the various segments of KMart's digital enterprise, which I don't feel possessed to address here.

In addition to the H: drive, employees also had access to P: and W: drives, the former being a "public" drive, and the latter being a "working group" drive. The P: drive was accessible by all KMart employees, and hosts Word, Excel, and lord knows what else. The employee's testimony, according to the opinion, indicated that employee email could not be stored on P: drive. [In point Seven, I will Explain Why that just Ain't True]

The W: drive is "more secure", whatever that might mean. Again, the testimony seems to reflect that e-mail cannot be stored on the W: drive. [SEE ISSUE SEVEN]

An interesting side note, one of the KMart attorneys indicated that she was not aware of the existence of either of these two drives until the day before the hearing on Global's motion. Based on timeline #1, I can imagine that the paint on the inside of counsel's office needs to be replaced after the whithering anger and frustration she must have experienced upon learning of yet another digital landmine so late in the game. [NEVERTHELESS, SEE ISSUE EIGHT]. While there is no automatic deletion of either the P or W drives, KMart IT folks do have some ability to prevent employees from deleting data stored on those drives.

In the next post, look for Timeline #2, which was the cause of both incredulity and an embarrassing string of expletives, and we will cover the 8+ fundamental issues the KMart case raises. (Sorry, but billable work beckons).

Finally, for those keeping score, Judge Sonderby denied the spoliation motion, but granted sanctions. I promise this is not a plot spoiler though, because you don't want to miss Timeline #2!

The Sedona Principles and Bankruptcy

My wife and I recently brought home a kitten for our children. Our youngest, the well-intentioned but maniacal three year old, has showered the kitten with so much attention and tough love that the poor kitten spends a lot of time with me in order to gain reprieve from the three year old. This morning, I watched, with no small amount of my own maniacal pleasure, as the kitten perched on the edge of the shower and tried to decide whether to stay on the ground he had already claimed, or let natural curiosity get the better of him and jump into the running shower. Having leaned too far in, and belatedly realizing now the obvious problem of the running water, the kitty scrambled back on to his perch. In his panic, he over-corrected and nearly fell backwards onto the floor, forcing him to scramble, leading to another over-correction that nearly caused him to fall into the shower. Sometimes that is how I feel about e-discovery issues in bankruptcy. (I also feel that way about my paltry retirement account the last several weeks, but that is a topic for another day).

Thanks to the Sedona Conference, I have found something of a counter-balance to keep me from falling from my narrow perch. After perusing The Sedona Principles: Second Addition Best Practices, Recommendations & Principles for Addressing Electronic Document Production [or Electronic Document Discovery if Appendix B of the publication is to be believed] (The Sedona Conference Working Group Series, 2007), a profound sense of calm came over me. I know that all of you, still bleary eyed from celebrating Barry Bonds' individual accomplishment last night will share in my relief. The Sedona Principles, which without a question are THE authoritative guidelines to electronic discovery, say nothing at all about bankruptcy. Surely this means by implication that the bankruptcy bar has nothing to fear from the December 2006 amendments to FRCP. Proof positive that e-discovery is just another way for our litigation colleagues to bulk-up against their opponents, finding another means to "juice up" as the kids all like to say.

On the other hand, maybe my own sense of calm is bred in the approach that the Sedona Working Group has taken establishing the suggested framework for dealing with digital information. More importantly, maybe there really are some good lessons to be gleaned from the recent publication.

The preface of The Sedona Principles boldly proclaims that the FRCP has not supplanted the group's efforts, rather than the principles continue to be the authoritative guide as to how lawyers ought to act in the digital age. The Working Group's claim to authority is well placed, given the straight-forward, easy to comprehend organization that seems to be one of the hallmarks of The Sedona Principles. Although the publication is anchored by the 2006 amendments, one gets the sense that the working groups are looking well beyond just the FRCP in terms of addressing policy and best practices for dealing with electronically stored information. This inference is reinforced by the scope of the different Working Groups, the publications already available through the Sedona Conference, and the seminars that the group is hosting.

In looking beyond just the FRCP, this brings us back to bankruptcy practice and "e-discovery." So far, the bankruptcy bar seems to have given something of a collective shrug to the notion of adopting an updated set of standards for technological competence and in addressing modern business practices. Given that ESI is not defined, or mentioned, in the bankruptcy code, the consensus seems to be that ESI, and all of the attendant concepts and issues, are collectively a litigation problem, not a bankruptcy problem.

If for no other reason, sec. 521 and sec. 541 of the bankruptcy code suggests otherwise. (For all the other reasons, take another look at any of the articles from my friend and un-indicted co-conspirator Jack Seward). Although the Sedona Principles don't address bankruptcy outside of the litigation arena, the working group has framed key foundational premises in much the same way as Seward, and more recently myself, have. See generally The Sedona Prinicples, pp. 2-10.

The one key foundational difference between the role of ESI in bankruptcy and ESI as a litigation issue is summed up by the working group's conclusion that, "The Rules and Guidelines are not self-executing." Id p. 10. Section 521 and 541, being substantive law rather than procedural rules, are certainly "self-executing" within the context of bankruptcy, and woe be unto the debtor who believes otherwise. The point is that the concepts of ESI do exist outside of the shark tank of litigation, and bankruptcy lawyers, consumer and commercial, will likely soon find themselves farther into the "twilight zone" of ESI than even their litigation counter-parts. Fortunately for all of us, The Sedona Prinicples is the best written, authoritative and easy to comprehend publication I have yet seen on the subject.

The other "must-have" publication from the Sedona Conference that every bankruptcy judge, lawyer and academic ought to have on their desk is The Sedona Guidelines for Managing Information and Records in the Electronic Age (Sept 2005 Version), which is also available from the Sedona Conference as a free download. Especially in the case of commercial bankruptcy lawyers, this publication is vital.

Now, if I can just get the three year old to leave that damn cat alone...

Finally, a Legitimate Business Use for that iPhone...

According to an article out last night, a handful of bankruptcy courts are about to embark on a pilot project aimed at making mp3 audio files available of hearings, that can be downloaded in much the same way we currently use PACER to access dockets.

The project is reportedly the brain-child of Judge Rich Leonard of the Eastern District of North Carolina. Working in conjunction with Case Management/Electronic Case Files brutes, and those lovely people in the courts' Administrative Office, the program will feature a newly designed interface so that Internet users can listen to audio files of hearings.

Not only is it convenient for small budget constituents and the public at large, it also means that in future big cases, I don't have to listen to NYC lawyers complain about Ft Worth not having any decent restaurants... Even better, mis-informed types like Senator John Cornyn will have one less arrow to use in messing with existing bankruptcy venue provisions.

After the program is put together, apparently it is going to be tested in the following bankruptcy courts: Northern District of Alabama, District of Maine. Also will be featured in the district courts of Nebraska and the Eastern District of Pennsylvania.

During the test, lasting only a year, the cost to download a file will be 16 cents. Later, small concerns such as bandwidth may increase the cost for larger files.

Kudos to Judge Leonard. This is exactly the kind of forward thinking that our profession needs more of. Not only can I now justify buying that iPhone I have had my eye on, but also a new, sporty European sedan
that is .mp3 ready!

A Word, or Three, about Technological Competence

First a programming note - I apologize for having been away for so long. Given the unprecedented rain that the North Texas region has been experiencing this summer, I have spent every waking hour learning all I can about Indoor Drag Racing. By all accounts, I should have plenty of extra resources to invest in this great new idea. If I can just figure out how to develop a practice near Grandville, MI, I could would dedicate all my nights and weekends to furthering the dream that is AYA Motorsports.

But I digress. Yesterday, my supervising partner came into my office with a pained expression, and holding a large box. I thought perhaps the box was heavy, given his obvious level of discomfort. Like any non-partner track associate who was passed over for a mid-year bonus, I tried to trip him and make it look like an accident. Alas, the box was nearly empty, having only a smattering of items inside.

"I need help with this stuff. This stuff was produced to me in an adversary proceeding yesterday. I didn't ask for it, I don't know what it is, none of it works with my iPhone, and I have a conference call with the client in 10 minutes to tell them all of the electronic discovery that is on here, whatever the hell that means." Said supervising partner dropped the box on my desk and left for a much needed two hour mid-day yoga retreat.

Peering over the edge of the box and casting my gaze upon its contents, I realized it was time to seriously consider quitting my day job to finish that All American novel hiding in the cob-web filled corners of my mind. The box held a small flash drive, a sushi-shaped USB drive, a USB controlled missile launcher (absent all but one of its missiles), a hand held blow dryer, a discharged nine-volt battery, and my missing remote control for my Playstation 2. I yelled down the hall at the retreating back of my supervising partner, " I have to hand deliver this to a digital gerontologist in Anchorage. I need two weeks and fifty grand!" Supervising Partner waved his hand in dismissive approval. Sometimes it is good to be king.

I continue to be distressed by the growing number of experts in electronic discovery and digital forensics. With a few exceptions, the most disconcerting groups are the former lawyers and the shuttered print shops that have entered this rapidly expanding segment of the market. The fear, at the outset, is not what these third-party vendors may do (or fail to do) that creates a problem, its the fact that too many of us may be willing to hand these experts the keys to inevitably more-complex bankruptcies without knowing what, exactly, these experts are doing for us (or to us, as the case may be).

Specific to bankruptcy, the simple fact is that the majority of us who do not reside in the rarefied air of "Biglaw" have not been able to keep up with, let alone afford, the capital intensive technological blessings of the business world. So many of us have yet to adapt and implement greater technological prowess in our own practice, there are probably few of us that have any business advising our clients on their own respective digital enterprises.

An article yesterday on InfoWorld is reflective of the majority of bankruptcy opinions that I have read to date regarding the use of technology in our increasingly digital practice. Rather than dealing with the substantive issues presented by the recent FRCP e-discovery rules changes, PACER and ECF still seems to be a challenge for some of us. The InfoWorld article details a firm in Aurora, Colorado that missed a hearing because the firm's email spam filter blocked the ECF notice of hearing. The article makes the same point that I have been making for the last few months that the federal judiciary appears to be getting this stuff much faster than the majority of practitioners, in that the federal judge on the case apparently pointed out to the lawyers that all they had to do was "white-list" the court, making them an approved sender. Eureka!

There are lots of resources to learn the implementation of this stuff. For instance, the ABI has a Technology and Telecommunications committee, which in part, explores how technology can best be applied by bankruptcy practitioners.
The ABA has some interesting resources through its Law Technology Today/Digital Edge page. on the practise side, the lovely and talented Steve Jakubowski just emailed to me a link for the free download of The Sedona Principles, Second Edition, Best Practices Recommendations and Principles for Addressing Electronic Document Production.

Join the ABI, listen to the ABA podcasts, read Sedona. In the mean time, I will be hopping a train North, so that I can increase my technological competence in the art and science of Indoor Drag Racing!