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...