Two Turntables and a Microphone...

Yesterday, the renowned technology and bankruptcy attorney Warren Agin posted a blurb on his blog Tech Bankruptcy about the recent 5th Circuit decision (In re Darby, 470 F.3d 573 (5th Cir. 2006) finding that cable TV was not a utility for purposes of section 366 of the Bankruptcy Code. Agin posed the question of whether or not Internet service could constitute a utility, such that sec. 366 would protect a debtor with past due bills from having service cut off.

Agin, by the way, is the author of Bankruptcy and Secured Lending in Cyberspace, 3D edition, which I am adding as item #3 on my Christmas wish list, just below the PS3 and the Sony Reader. When Agin publicly wonders about something like this, I suspect it isn't just so he can win the next pick up game of Trivial Pursuit - Insolvency version. I also suspect he has a better handle on such issues than just about every lawyer, and dare I say, most jurists, in the lower 48.

While doing some unrelated research on another topic I recently promised to write about, I stumbled across an interesting provision in Texas law which tripped my early morning curiosity about Agin's musings. Chapter 35 of the Texas Business and Commerce Code is the aptly named Miscellaneous Commercial Provisions Section. The lead-off provision (tip of the hat to Cleveland Indians for beating my beloved and beleaguered Texas Rangers in 11 innings) is sec. 35.01, defining certain terms related to security instruments and utilities. Sec. 35.01(a)(2) defines "utility", at least for purposes of chapter 35, as "a person engaged in... (A) generation, transmission, or distribution and sale of electric power; (B) transportation, distribution and sale through a local distribution system of natural or other gas for domestic, commercial, industrial, or other use; (C) ownership or operation of a pipeline for the transmission or sale of natural or other gas, natural gas liquids, crude oil or petroleum products to other pipeline companies, refineries, local distribution systems, municipalities, or industrial consumers; (D) provision of telephone or telegraph service to others; (E) production, transmission, or distribution and sale of steam or water; (F) operation of a railroad; and (G) the provision of sewer service to others.

Interesting. What, by the way, is a telegraph? Is that a term of art for the new feature allowing me to email my voice messages to myself? I am still saddened by Western Union's decision to bow out of the telegram service. I always dreamed of doing something grand enough to warrant at least a single telegram.

After making sure that "utility" was not a term defined in the Code, at least not in either section 101 or 366, I decided to dig a little deeper into the Texas statutes. Turns out that Texas has a Utility Code, and that Chapter 51 of that code addresses Telecommunication Utilities. As luck would have it, section 51.002 of the Utility Code has a rather wordy definition section, full of multi-syllable words arranged in combinations to defy understanding. A quick pass through those big words looks to me as though Internet providers are not considered utilities under this definition unless, essentially, a telephone company is providing both telephone and Internet services (even then it seems to be limited to situations where the Internet service is considered part of the "basic local telecommunications service." In Texas, basic local service consists of two tin cans and a piece of twine. Probably no luck for consumers in this definition. (Not for nothing, but my sons and I love those Vonage commercials. I sure do hope Vonage can survive the current onslaught...)

Perhaps I am, as I am prone to do, getting ahead of myself in unravelling this puzzle. Looking back at the 5th Circuit's Darby opinion, I want to see how the court defined "utility". Exactly as Agin suggested, the court said that a "utility" was necessary to maintain minimum standards of living", and that such providers stand in a "special relationship" with the debtor as a provider of such services. Instead, the court suggested, Darby could have obtained access to television from a satellite provider.

I am guessing the 5th Circuit didn't sign up for cable tv when the court was temporarily displaced to Houston. Until recently, cable tv in Texas was administered as a franchise through municipalities. Although this is merely anecdotal, I noticed that cable tv is also a matter largely taken up in, you guessed it, the Utility Code.

Cable tv, just like our beloved foray into deregulated electricity, is also in the throes of deregulation. The Court deduced that, since alternate services were available, such as satellite tv, there was no special relationship between Time Warner and Mr. Darby. Texans are constantly bombarded now with the "good news" that they can seek out alternate providers of their electric service, and are no longer stuck with just one provider. Does this mean then that the 5th Circuit has, by logical extension of its analysis, opened the door to allow electric companies to slide around any unfavorable restrictions in sec. 366?

Even more perplexing is the idea that the Internet is not necessary to maintain minimum standards of living. For any lawyer practicing before federal courts, where ECF filings have rapidly transformed from mandatory to common place, certainly Internet access is necessary to feed a lawyer. On-line banking has allowed my creditors to empty my pockets on a much more timely basis. My health insurance provider alerts me through email that my online EOB's are ready for review. I have a touch of the multiple sclerosis, which means from time to time I am just not able to come into the office. Without Internet access, I would not have the ability to remote in and at least scratch out some of the day's "to-do" list.

Who, you might ask, is my Internet provider? It is my Cable TV provider.

In my humble opinion, rather than rely on what was, at the time, a 9 year old opinion from a bankruptcy court in North Carolina, the 5th Circuit ought to have at least waded through the definitions of "utility" as that term is understood in Texas statutes. The outcome may have been very much the same as that reached in the Darby opinion. If the court had looked to Texas law though, at least that type of analysis would give debtor's counsel, especially for consumers, an infinitely better understanding of what is in, and what is out, for purposes of section 366. Saving for another day the argument of whether or not Darby was outcome driven, the Darby opinion will have a very short lifespan as practical and applicable precedence as it overlooks the dynamic forces of changing business models, advances in technology, and the day to day reality of state regulatory authorities.

Dang-blast that Agin! Rickin-fracking racken' varmit! I will never finish my next post, let alone my All-American Novel, getting caught up in mental pretzels!

Texas AG Reminds Everyone about Document Security

Today, it is being reported that Texas Attorney General Greg Abbot has sued CVS Corp for mishandling sensitive customer information including credit card numbers and medical information. Though I have not yet read the complaint in its entirety, the AG appears to be pursuing two primary causes of action, one being the violation of the 2005 Identity Theft Enforcement and Protection Act (enacted as Chapter 48 of the Texas Business and Commerce Code), and the second being violations of Chapter 35.48 of the Texas Business and Commerce Code, which governs the retention and disposal of business records in Texas.

The suit against CVS apparently marks the fourth suit in Texas under the Identity Theft statute. Radio Shack got tagged a few weeks ago with similar issues. A brief, and incomplete, Google search indicates that other states have, or are considering bills similar to the Identity Theft statute. I would not be surprised to discover that a number of states also have some form of retention and disposal statute.

For those of us accustomed to practicing in bankruptcy courts, these types of state law requirements add yet another layer of responsibility, especially on debtor's counsel. I will be the first to admit that I only learned of these two statutes this morning, and dare say that no other bankruptcy practitioner in Texas has ever mentioned either in my presence. Not only do state law requirements of this type reinforce the need to be prepared, and to educate and prepare the client before filing, but such statutes may also add weight to the suggestion that First Day motions include a damn good document retention policy where none existed pre-petition.


Will do my best to look more deeply at these issues over the weekend and will update before Monday. There are some interesting issues here that warrant a few more electrons out on the Internet!

Watch out D.C.

"When I breeze into that City,
All the People Gonna scrape and Bow.
All the women Gonna make Me,
Show 'em What they don't Know how..."

Jackson
As performed by Johnny Cash and June Carter Cash
as portrayed in the movie Walk the Line

I know that everyone is still basking in the after glow of this morning's CSPAN coverage from the ABI Annual Spring meeting, but I just needed to put in last plug for the Commercial Fraud Task Force presentation tomorrow at 4:00 p.m. Aside from the promise of free software (see previous post), it turns out that co-committee chair Jack Seward had an open seat on the panel, to be filled by yours truly!

I can promise you that many, many hours have been put into the panel discussion and it is not to be missed! SO, sit down, lie down or fall down, but however you can get there, it is an hour and a half not to be missed.

A Last Minute Easter Egg...

This just in from the ABI's Commercial Fraud Task Force Committee: The free bankruptcy triage software being made available by committee co-chair Jack Seward is also being made available to ANYONE, free of charge, for a very limited time. This offer is not restricted to ABI members only, but is also being extended to non-members in an attempt to bring more members into the fold.

In order to access the software, simply submit 10 questions for the rapidly approaching panel presentation taking place at the ABI Spring soiree' on Saturday, April 14th beginning at 4:00 p.m. EST. Questions need to address the areas covered by the abstract below, and should be sent directly to Jack Seward at jackseward@msn.com .

Also, I heard a rumor that there may be a special guest speaker joining the panel. Check back here early and often for developments!

Abstract:
Our panel has been preparing for this event with great enthusiasm. The discussion relates to exactly how are you going to find the assets in the 21st Century for the estate, but quickly enters the subject of debtor counsel responsibilities under § 707, § 542, § 727, Rule 9011 and 18 U.S.C. Michael D. Fielding takes on the role of representing debtor's and becomes concerned regarding debtor and attorney responsibilities as we explore the numerous issues facing any business case and perhaps most consumer cases. David P. Leibowith, Esq. does what's natural to him as a panel trustee, searching for undisclosed assets for the estate but admits times have changed and the digital environment creates new opportunities and responsibilities in uncovering hidden assets. Patricia B. Fugée will be at home when she actively pursues the need for discovering electronically stored information under the FRCP. She has practically told us the rest of us on the panel "you better watch out" and perhaps some of may have thought is that a threat to bankruptcy counsel and besides being focused on the Code does it have anything to do with the ethical responsibilities in our digital society where most anything created today can be found on computers, like it or not? Jack Seward provides the "best practices" in forensics, fraud and electronic discovery issues but does not stop at the FRCP and reminds everyone, The Debtor's Digital Autopsy by definition needs to be performed in business cases and many consumer cases, but always with a tight grip on the practical aspects including timeliness, cost effectiveness and being fair to all concerned. He claims the free and fully-functional bankruptcy triage software that will be provided to those that attend will find more than some of us want to know and it will be shown in real time. Bruce L. Weiner, who often represents the panel trustee, keeps the panel focused and provides hard hitting and probative questions on what's important to understand in your practice, regardless of what side of the isle you find yourself on.

Oh but for the Want of a Mid-Year Bonus...

The most important ABI presentation taking place all year is set for April 14! If I hadn't sunk all of last year's tax return into a handful of lottery tickets, I would be headed there myself, because... it sounds like Jack Seward, Michael Fielding and company will be answering all of the questions I have tried to raise in these hallowed digital walls. If I had the answers, I could spend my 4 a.m. to 8 a.m. time slot on more profitable endeavors. So, uhhh, if someone else goes, please let me know what they decide...

By the way, I have it on good authority from Jack Seward himself, who is also the co-chair of the Commercial Fraud Task Force Committee, that there is a late "Easter Egg" for those who attend the presentation. There is some free software, a bankruptcy triage of some design, that effectively rolls the allegorical log back to show, in real time, that which lives in the mud and filth outside of plain view. Seward is a sharp character, but see if you can snake a copy of the software for me while you are at it.

Plan to attend the Commercial Fraud Task Force Committee panel presentation Saturday, April 14th – 4:00 P.M. to 5:30 P.M.

Understanding Debtor Responsibilities in Consumer and Business Cases: Providing Electronically Stored Information

The Panel:
Michael D. Fielding, Esq., Blackwell Sanders Peper Martin, LLP, Kansas City, Missouri
Patricia B. Fugée, Esq. Roetzel & Andress, Toledo, OH
David P. Leibowitz, Esq., and Ch 7 panel trustee, Leibowitz, Waukegan, Illinois
Jack Seward, Jack Seward & Assoc., LLC, New York, Co-chair
Bruce L. Weiner, Esq., Rosenberg Musso & Weiner, LLP, New York, Moderator

Abstract:
Our panel has been preparing for this event with great enthusiasm. The discussion relates to exactly how are you going to find the assets in the 21st Century for the estate, but quickly enters the subject of debtor counsel responsibilities under § 707, § 542, § 727, Rule 9011 and 18 U.S.C. Michael D. Fielding takes on the role of representing debtor's and becomes concerned regarding debtor and attorney responsibilities as we explore the numerous issues facing any business case and perhaps most consumer cases. David P. Leibowith, Esq. does what's natural to him as a panel trustee, searching for undisclosed assets for the estate but admits times have changed and the digital environment creates new opportunities and responsibilities in uncovering hidden assets. Patricia B. Fugée will be a home when she actively pursues the need for discovering electronically stored information under the FRCP. She has practically told us the rest of us on the panel "you better watch out" and perhaps some of may have thought is that a threat to bankruptcy counsel and besides being focused on the Code does it have anything to do with the ethical responsibilities in our digital society where most anything created today can be found on computers, like it or not? Jack Seward provides the "best practices" in forensics, fraud and electronic discovery issues but does not stop at the FRCP and reminds everyone, the debtor's digital autopsy by definition needs to be performed in business cases and many consumer cases, but always with a tight grip on the practical aspects including timeliness, cost effectiveness and being fair to all concerned. He claims the free and fully-functional bankruptcy triage software that will be provided to those that attend will find more than some of us want to know and it will be shown in real time. Bruce L. Weiner, who often represents the panel trustee, keeps the panel focused and provides hard hitting and probative questions on what's important to understand in your practice, regardless of what side of the isle you find yourself on.
Please send your questions to ask the panel if you do not plan to attend the ABI ASM 2007 to Jack Seward, co-chair of the Commercial Fraud Task Force Committee at jackseward@msn.com .

Magnum Opus and Bill the Cat...

Nearly a month has passed since my promise to, once and for all, solve the problems of debtor's counsel in regards to ESI and the small Chapter 11 filing (not necessarily to be confused with a "small business" Chapter 11, pursuant to section 1121(e) of the Code). Despite the lack of case law to support me (or maybe gleefully free of the constraints of existing case law), I dreamed of going farther and faster than any practitioner before me. This post was to be my Magnum Opus. As typically happens at the buffet, my eyes were larger than my appetite. Instead, I am going to break this down into smaller, more digestible parts.

My previous post, absent any case law or other direct support, concluded without saying as such that a small chapter 7 business bankruptcy filer may be able to "get by", at least relative to ESI issues, by inventorying, securing and disclosing the debtor's ESI and electronic enterprise to, and on behalf of, the Trustee. In the most general and innocuous of business 7's, the argument can be made that the Bankruptcy Code requires nothing more from the debtor. That same argument, perilously thin in Chapter 7, simply cannot be made by even the most adventurous of commercial debtor's lawyers.

For weeks, I have struggled with how to approach this topic. Jack Seward, who has long sounded the clarion call to bankruptcy practitioners, and for whom I have the utmost respect, has suggested to me that currently it really is not ideal, or perhaps even possible, for the vast majority of practitioners to meet their duties as officers to the court. By implication, every case requires the hiring of a real-life, come to Jesus type of ESI forensic professional. I wince when reading some of Jack's most recent article, as headlines such as "Horsing Around" seem to hit close to home. I have had a month long "wincing" though, given that the practical reality for many smaller and some medium sized commercial 11's just won't support the expenses of someone with Jack's experience and expertise (at least in the days and weeks leading up to the filing.

Between my annual bout of spring time respiratory distress, and the prolonged feeling of continuing to disappoint Ft. Worth's local gem Ted Mack, I have been moping around in a bit of a mental fog. (In the week following the death of NHRA star Eric Medlen, I was unable to even look at this post). Sadly, clarity of thought is usually obtained in the shower, and my notes keep getting all soggy. It was in this mind-clearing escape that I remembered a long ago revelation about bankruptcy law, as passed along to me by the eternally calm and unusually patient Prof. Dean Pawlowic at Texas Tech School of Law. His explanation of bankruptcy itself can be applied to dealing with ESI in bankruptcy. As Prof. Pawlowic patiently explained so long ago, bankruptcy is so fascinating because, from the outside looking in, any number of other substantive legal disputes and implications present themselves in more traditional practice areas. Bankruptcy however, can be layered on top of all of those other legal conundrums and mental complexities.

ESI issues (that means electronically stored information for all my readers in Mangum Oklahoma), "layer" onto bankruptcy practice just as bankruptcy layers onto most other practice areas. ESI is not just for discovery anymore, and the care and handling of ESI must figure into every area of Chapter 11 stewardship, with the same level of importance as cash collateral, valuation and making sure that each committee member has a different colored lollipop.

This is true, not because of the December 2006 amendments to the Federal Rules of Civil Procedure, but because of sections 105, 341, 363, 502, 503, 505, 506, 507, 510, 521, 541, 542,543, 544, 545, 546, 547, 548, 549, 550, 553, 554, 558, 1103, 1104, 1106, 1107(a), 1112(b)(4), 1116 (for true small business cases), 1125(a)(1), and 1129 of the bankruptcy code. The list is not exhaustive, but should be thought of more as a minimum standard.

And so it is that addressing ESI as a component of the business enterprise begins with the initial client consultation, continuing through intake and the frenetic build-up to petition day, and physically manifesting in the schedules and statement of financial affairs. How then, can we find a practical application for all of these big words that make my mother so proud of me?

Based on non-bankruptcy case law, and the proliferation of CLE presentations on ESI/EDD, most bankruptcy lawyers should already be generating an ESI check list that looks something like this:
1. Obtain a copy of the Debtor's document retention policy. If the Debtor has a policy to begin with, this is an additional clue as to the level of sophistication of the Debtor. From the retention policy, at the bare minimum, counsel ought to be able to get a sense of the size and scope of the data enterprise, the extent to which the debtor relies on technology to perform its core business functions, the type, form and location of archival storage, as well as resources available to operate in case of some form of business interruption. (An interesting question here - Many companies, in light of Hurricane Katrina are evaluating their loss/recovery strategies. From the insolvency perspective, one wonders if data lost through some insolvency-related matter might be covered by business interruption/recovery type insurance policies.)
2. Determine if the company has been following its document retention policy. Many commentators have suggested it is worse to have a retention policy and not follow it, than to have no policy at all. As has been discussed in this forum before, that is certainly the case in a litigation context. It is just a matter of time before someone tees up this issue in a motion to convert or dismiss, or perhaps a contested plan confirmation.
3. If the debtor does not have a document retention plan, urge them to consider seeking the Bankruptcy Court's approval of a well-constructed plan. Aside from demonstrating management's commitment to instituting the changes necessary to make the debtor a lean, mean 21st century competitive machine, there may also prove to be some tactical advantages to having the court approve a document retention plan when later, inevitable discovery disputes erupt.
4. Identify the key IT staff (or vendors) most knowledgeable of the digital enterprise. The weeks leading up to a filing can be hectic, and it is no time for debtor's counsel to be picking up a copy of "Dummies Guide to Digital Voodoo and Modern Insolvency Practice". Over time, it is likely that counsel will spend as time with IT staff as they now do CFO/CPA/accounting types.
5. Obtain a complete inventory of the Digital Enterprise. I am not, of course, referring to some new generation spin-off of Star Trek. That is a different Enterprise. In just the same manner as Schedules itemize real and personal property, so to should the debtor be prepared to disclose hardware, software, proprietary data and methods, licenses, archival storage agreements, and the like. To the extent that such information is not gleaned from either the document retention policy, or time spent with IT staff, by the time counsel has the digital enterprise inventory (I would shorten the phrase to DEI, but I fear a certain NASCAR team of the same name would hunt me to the ends of the earth), they ought to be able to wrap their arms around the number and types of computers and other hardware used, the general structure and use of in-house servers and networks, third-party vendors, security procedures, and be able to identify potential problems faced by any employer, such as employee theft, the misuse of data of customers, etc. Counsel also needs to remember that often times, equipment containing ESI is leased, and in the months preceding bankruptcy, leased equipment is often abandoned, returned, or lost. Counsel needs to be aware of where the leased equipment is, and what steps have been, or need to be, taken to preserve the ESI. Consideration should also be given to identifying any ESI sources that have been, or are about to be, moth balled due to age. If such platforms may harbor data necessary for the reorganization, or that may be discoverable in litigation, steps should be taken to preserve, in a usable manner, such "legacy data." To the extent feasible, this inventory should be complete enough that it can sufficiently meet the debtor's disclosure requirements in the Schedules and SOFA.
6. Plan for preservation of current "books and records" data. With the exception of the Bedrock Quarry, it is unlikely that debtor's counsel will find any modern business that keeps its books and records in the form of hand-written ledgers. This is one of the most likely areas that debtor's counsel will have to face the "future of forensics", in that data (and meta data) will play an important role in any number of areas, such as preservation of the data in general compliance with the code, preservation of data reviewed by expert witnesses, preservation of data that the creditor's committee is likely to request, and preservation of data that is likely to be subject to discovery in litigation commenced by, or against, the debtor. This is also a good time to start thinking about hiring an ESI-guru, ala Jack Seward, to provide the necessary technical guidance in accomplishing this feat. If the data is subject to automatic archiving, or potential destruction from routine back-up procedures, consider the balance between the consequences of deviating from company retention policy against the duties and expectations of a DIP in terms of properly maintaining the books and records in the rarefied air of bankruptcy.
7. Pay special attention to email. To this very day, I am prone to putting things into email that I would not put into a letter, nor would I raise in public. During a recent ginormous review of emails, I spent far more time than I wanted to reviewing emails that contained nothing more than recipes, vacation stories, and inter-office gossip. Email is a funny thing that way, but it is funny in other ways to. Email might be stored on a client's exchange serve, might be stored on a Blackberry server, might be stored on the individual workstation, might be archived in .ost or .pst files, might be saved on some third-party web based storage, might be stored as a .pdf file on any applicable storage medium. Paper might be the Silly Putty of litigation, but email is the digital equivalent to the gelatinous substance that oozed out Stretch Armstrong when you finally manage to pull his arm off of his body. It oozes into cracks and pores, is hell to clean up, and can leave a stain for a long, long time.
8. Consider state and federal laws and regulations. Not all data is created equally. Some data is afforded more protection that other data. HIPPA and ERISA issues come immediately to mind. Also bear in mind that privacy laws, in many instances, are far more restricted overseas. This is especially true in Europe. If your debtor is involved in international transactions, special considerations need to be given to the oft-stringent, and literal application, of some foreign privacy laws.
9. Develop strategies in anticipation of future demands. Regardless of whether or not the debtor has a document retention policy, special circumstances may require solutions or relief well beyond the application of any retention policy. The Debtor needs to be prepared to seek court intervention or assistance in providing for a document repository. If a particular facet of the reorganization, or specific are of litigation, is expected to be ESI intense, the debtor may wish to seek the appointment of a referee or "ESI examiner" to assist all interested parties in dealing with the ESI issues and discovery disputes. At the very least, utilization of a third-party might diffuse discovery disputes and allegations of bad-faith. Most importantly, if a debtor in concerned that certain data is likely to be sought after by some party, and that data truly is too expensive or is truly inaccessible, the debtor ought to consider bringing the issue to the court's attention early in the proceedings. Debtors might consider a range of relief, from establishing procedures requiring other parties to pay for retrieval and on reasonable terms (so as not to disrupt the work flow of the debtor), to an absolute pass on the data, such that the debtor has no duty to retain or recover the data in question. Though it goes without saying, Debtor's counsel ought not hesitate to seek to utilize cost-shifting measures, even if the matter at hand is not a pure discovery/litigation question.
10. Get a document retention policy in place. Yes, this point is a repeat, but that is because it is a point worth repeating. Cash collateral motions require budgets, disclosure statements require liquidation analysis, ESI requires a document retention policy. As suggested before, there are tactical advantages to getting bankruptcy approval on the first day. From the enterprise perspective, the policy can survive the bankruptcy, can lend strength to the disclosure and confirmation process, and continue to serve and guide the reorganized debtor long after the Effective Date.
If you will all excuse me now, I am going to seek out Ted Mack and see if I did a better job of answering his question...

Not Merely a Suggestion from one District Court...

Jeez, I wish every day could be April Fool's Day. Thanks to everyone who dropped by the last two days, hope everyone got the joke...

Back to business. Friday evening, while continuing to struggle through the long promised first-in-a-series of posts for the small and medium reorganization case, a district court opinion from the Southern District of Indiana, Indianapolis Division (and home of many Top Fuel and Funny Car race teams) provides some interesting insight into the judiciaries view on the practical effects of ESI in the area of federal proceedings.

In Wellman Thermal Systems Corporation v. Columbia Casualty Company, et al, District Court Cause No. 1:05-cv-1191-JDT-TAB, (related Bankruptcy Court Case No. 03-01934-JKC-7A)Judge John D. Tinder issued an opinion in a bedevilling case originating in bankruptcy court. For our purposes here the existence and role of, and story behind, a court ordered electronic document repository are noteworthy.

Being a child of television, the bankruptcy itself was just confusing enough that I had to diagram the background. The bankruptcy in question related to an outfit (Wellman) involved in some form of heating systems, who was renting space from a former DIP landlord. The landlord eventually wound up in receivership. Chase had two notes secured by the building occupied by Wellman. Chase sold the notes, presumably at a significant discount, to a third-party. The bankruptcy trustee sued Wellman's insurers to recover on expected environmental claims. The real thrust of the case was to obtain judgment such that no less than 10 insurers might face liability on the costs of the cleanup.

WARNING - PRACTICE TIP AHEAD: Some District Judges take a dim view of bankruptcy cases in general. We ought not go out of our way to irritate them. Judge Tinder, as you will readily understand, was not happy with the parties. The insurers alleged that the law firm representing the Trustee should be conflicted out for representing a creditor with an environmental claim prior to the adversary. The insurers had withdrawn the reference from bankruptcy court, and had filed a motion to dismiss in the district court. The Trustee opposed the motion to dismiss, but filed a new proceeding alleging the same claims in state court, and also asked the court for leave to dismiss the district court proceeding. The insurers removed the state litigation to the bankruptcy court (having previously withdrawn the reference in the original matter). Any damages recovered by the Trustee were loosely earmarked as follows: 1) Attorney's fees, 2) Attorney's fees, 3) Attorney's fees, 4) Cost of Remediation, 5) Distribution to Creditors if any money left over after Remediation. One could reasonably infer that the District Court may have viewed this arrangement as questionably providing a return to the estate that it really wasn't entitled to.

In deciding whether the case should be heard in federal court, as opposed to state court, one of the issues discussed by the judge was an electronic document repository the court had ordered, apparently sua sponte, as part of the case management order. The purpose of the repository was to provide the court and the parties one central location for document images. The repository was ordered to be maintained by the insurers, given their sheer numbers. The court also ordered that a uniform numbering system be put in place for document identification purposes. The court noted that DVD's containing at least 20,000 pages of documents had been processed and made available under the order. The investment in time of resources, including the naming of lead defense counsel for purposes of managing the depository, hiring a vendor, and processing the documents was sizeable. The risk that the time and effort put into streamlining discovery, even if a limited factor, was a factor worth reviewing in determining whether or not the district court should keep the matter. Ultimately, the court allowed the "conflicted" firm to stay in the game, but also ruled that the game would be played in the District Court.

In reviewing the docket, there seems to have been some delay on the part of the insurers in deciding how to implement the Court's ruling concerning the care and feeding of electronic documents. Ultimately, the insurers developed a protocol that was approved by a magistrate judge in May 2006.

The protocol named a single provider to scan, Bates number, source code [document author, date, etc], OCR and logical document determination (LDD) for all the documents submitted by the insurers. Bates numbers are alpha-prefixed identifying the party providing same. Once the vendor completes its pass, a CD with the documents is provided to lead counsel, who then imports the data into its Summation system.

Pleadings and related documents are also sent to the vendor for the same treatment, but those documents receive a more generalized Bates number.

Once the vendor sends the docs to lead counsel, lead counsel has 15 days to review all the documents and determine whether or not any duplicates exist. Once that review is completed, then the uniform document numbers are assigned to the remaining documents. Lead counsel creates an "authentication set" and distributes a copy of all documents on CD to counsel of record. Interestingly, the order does not seem to address privilege and other related issues.

For the purposes of bankruptcy, the implementation of an electronic document repository has some interesting appeal. In fact, creditor's committees in larger bankruptcy cases have already implemented some variations of this approach in order to meet their new obligations under sec. 1102(b)(3). As allows, a primary factor is going to be the cost of doing so.

Although the United States Trustee does not have me at the top of their "Things to Do" list, I have wondered aloud about the possibility of having the US Trustee serving in this function where appropriate. Some of the costs could be defrayed by a bump in the Trustee's quarterly fee. Alternatively, this might be an ideal function for the next generation examiner/discovery referee. Such a court-appointed professional, knowledgeable in technology, discovery and bankruptcy, would serve a tremendous service to the Debtor, to the Court and to all other parties in interest. I know that litigators will be repelled by such a suggestion, but remember the starting assumption of this blog... ESI ain't just for litigation anymore (indeed, for bankruptcy lawyers, it is likely more a continuation of pre-existing obligations/considerations).

The Wellman approach does not truly address the entire scope of ESI, and instead should be viewed more as the bar's "first generation" approach to dealing with ESI. This approach, which is the focus of most general practitioners, only differs from traditional discovery in that paper is being substituted for zeros and ones. Through OCR and coding, searching documents for certain key words is much easier, but this approach to ESI only tells the user the same essential information that a reader of a paper document would receive.

Lets say that the Wellman plant used some type of integrated sensor and alarm system that was computer controlled, that recorded real-time data, kept a log of system failures or of events leading to pollution. A "document" repository might only contain a written incident report summarizing the incident, and perhaps noting the fact that the sensor and alarm system registered the incident. Unless counsel thinks through all the levels of this transaction, the data and information available through the data files of the alarm system might not be considered. For either party in litigation, or in a contested matter over a proof of claim, or in a motion determined by management's inability to handle such events, the data from the alarm system is exponentially more valuable than a summary report, which might "omit" certain details.

In many cases, this "Wellman approach" is unnecessarily expensive in comparison to its actual benefits. In smaller cases in particular, documents can be scanned and ocr'ed in house by support staff. Hell, most photocopiers allow a user to scan and ocr a document (when I am not busy printing off NHRA ladders for upcoming weeks). If a matter is small enough to be photocopied in-house, why can't it be scanned and ocr'ed in house? In addition, Summation can prove to be expensive for some firms, and in my opinion, is not always terribly user-friendly. (Yes, I also know how to make coffee, send faxes, locate the key to the storage closet, and validate clients' parking. Several wise lawyers have reminded me that, if I ask support staff to do it, I need to know how to do it myself as well.)

The Wellman approach will also prove less and less effective for bankruptcy purposes, once creditors and courts require us debtor's counsel to move into "second generation" ESI. Not only do we need to understand the use and importance of software products that make up the "books and records" of the debtor, we need to understand the data files supporting the "documents" spit out by those programs. Our experts will need the data, and we have to be able to provide that data to other experts, to the US Trustee, and to the committee. We have to understand that the data constitutes property of the estate, and in many forms. And we have to know our limitations, so that we know when to call the Jack Sewards of the world so as not to screw up our client's ESI.

Now, um, if anyone in the greater Indianapolis area has any pull with any of the NHRA teams that call Indy home... you know, um, maybe put in a good word for me. I don't know anything about completely rebuilding a 7,000 h.p. engine in an hour, nor can set up a clutch to handle 320 mph speeds. I did watch a kid on Ron Capps crew last year spend all morning preparing rear tires... I think I could do that while providing valuable insights to fans in the pit area about legal developments and technology... anyone?

Court permanently enjoins use of Electronically Stored Information in Bankruptcy!

For those late-comers still reviewing this post, please take note of the DATE of the post. I don't want to hear any unfortunate stories of overeager associates citing to the "opinion" referred to herein as demonstrative of why it is so important to verify citations before trotting your briefs down to the court house.

In a ground-breaking opinion certain to be readily adopted as a uniform rule by all bankruptcy courts in the nation, a Texas bankruptcy court has issued an order permanently enjoining the use of ESI, in any manner, in future bankruptcy proceedings.



In the matter styled Reverend Horton Heat, et al v. Zach's Club 54, (In re Club 54), 71 B.R. Supp. 666 (Bankr. N.D. TX 2007), Judge William "Chase" Roach, bankruptcy referee for the United States Bankruptcy Court, Northern District of Texas, Canyon Division, sent shock waves through the bankruptcy bar with Friday's ruling. According to Roach's acerbic opinion, the recent amendments to the Federal Rules of Civil Procedure regarding the role of ESI in discovery have disrupted a bar already rocked back on it's heels in the wake of BAPCPA. The Club 54 opinion cited many "dangerous, disruptive and damned uninformed web sites and blawgs [sic]", which included several less than favorable references to this "blawg", as proof that ESI has no place in the practice of modern bankruptcy.



Roach went on to explain that, rather than adapting to technology, technology will continue to adapt to the needs of the legal profession, even if such evolution is "retro in nature." According to Roach, this "retro technology" can best be proven by Google's decision to offer, free of charge , paper copies of all emails and attachments. Roach added that the newest service, known as Google Gmail Paper, provided debtor's counsel the ability to keep real documents in their possession, enabling them to focus on practicing "real law". In a footnote, Roach explained that if services such as Gmail Paper were good enough for Alberto Gonzales, it was not the court's place to "one-up" the nation's top lawyer. Roach acknowledged that his decision will "significantly shorten the careers of this new crop of techno-lawyer wannabe's and forensic snake oil salesmen", and went on to suggest that any lawyers or vendors displaced by his decision consider Baylor dental school as an alternative. In a shot apparently levelled at this author, Roach suggested a reality-television show on the Comedy Channel.



Roach, a known long-time supporter of NASCAR, likened the use of ESI in the courtroom to the introduction of the "Car of Tomorrow". In yet another footnote, Roach prophesied that, unless the march of ESI into the bankruptcy courtroom were stopped now, it would be the equivalent of "letting one of those damned hybrids on the track." It should come as no surprise to commentators familiar with the influence racing has among lawyers and judges in the South, that Roach is a die-hard supporter of the "Car of Yesterday".



Counsel for the parties involved were not certain of either was willing to appeal the court's ruling. One source close the matter stated, "This ruling is great for the lawyers, because it means we don't need to do anything that we haven't been doing for decades. Nothing new to learn, no changes to how we prepare for new filings, no one else to have to share fees with. Aside from having to suffer through a three day hearing with this Judge, who is kinda creepy, this really is a great outcome for us. I mean, for us as lawyers."