E-Discovery lapse could decimate a small business, experts say

While newspapers highlight stories of large corporations embroiled in legal disasters for failing to provide courts crucial digital evidence, technology experts and attorneys say small organizations are no less vulnerable to electronic discovery requirements.

A multi-million dollar court case that may effectively tarnish the image of a big company because of an e-discovery slip-up could well wipe out a much smaller business, they say.

“E-discovery is not limited to high-profile cases, it can have significant impact on small businesses as well,” according to George Socha, principal of

Socha Consulting LLC, a Saint Paul, Minn. law firm specializing in e-discovery strategies.

Socha was a participant in a virtual round table discussion on e-discovery issues recently hosted by Symantec Corp.

E-discovery refers to the use – in discovery (pre-trial phase) or court cases – of information, in electronic format.

In this context, e-discovery could include e-mail, instant messaging chats, document files, accounting databases, metadata, Web sites or any other electronically stored information that could be relevant evidence in a law suit.

Panelists in the round table were all U.S.-based, but one Canadian analyst said local SMB’s are often constrained by lack of resources.

“The impact could be greater on SMBs because their smaller budgets limit their ability to secure e-discovery solutions,” said Michelle Warren, senior technology analyst for Info-Tech Research Group, in London, Ont.

She said Canadian firms dealing with American companies should pay close attention to laws on the area being developed south of the border.
In 2006, the U.S. amended its Federal Rules of Civil Procedure to require parties in legal disputes to bring up and agree upon e-discovery issues at the beginning of proceedings.

This could include the file format of documents, how documents are preserved and who has access to them. The rules apply to Canadian branch offices of a U.S. firm or any Canadian enterprise dealing with American firms.

With North American legal obligations around e-discovery becoming increasingly rigorous companies are also spending more on e-discovery tools.

Analyst firm Gartner, estimates the average cost of defending a lawsuit now exceeds $1.5 million per case. Around 20-30 per cent of that amount is made up of internal IT-related expenditures, the firm said.

It is important to set up an e-discovery program well before an issue arises because the excuse ‘we don’t have it’ just won’t fly when courts demand electronic evidence, according to the panelists.

“The price of failing to comply is significantly higher than what it could cost to install the appropriate tool,” said James Daley, another panelist and partner at Redgave Daley Reagan and Wagner LLP, a law firm in Kansas City. “Credibility can be destroyed and penalties [imposed] that can bankrupt a small business.”

Big businesses – most of whom have in-house IT and legal departments – are able to formulate effective e-discovery programs to deal with “high stakes-high risk cases,” said Socha.

“Small organizations and mom and pop businesses are less likely to pull it in. Most don’t have a legal department and probably even outsource IT.”
And it is precisely the effective coordination of IT and legal professionals is vital in mounting a strong e-discovery strategy says Gregg Davis, senior vice president and CIO of Webcor Builders, a full-service general construction contractor based in San Mateo, Calif.

“E-discovery is a moving target everything is fluid and lot of laws around it are constantly evolving.”
Partly for this reasons, Webcor “saves everything,” said Davis.

“If it’s an e-mail between our people and those involved in a project, we save it. We are always very careful of what we say, discuss and do.”

He said his company follows a strict data lifecycle program “because an auto purge is just a lot of risk.”

Ideally a firm’s legal department must take the lead in identifying which documents should be retained and for how long, while IT would provide the tools and process to enable data classification, storage, access and life cycle management, Davis said.

Companies engaging in high “costumer touch” activities are typically prone to possible legal challenges that would involve e-discovery, Daley said.

In this case e-mails between the company and customers, transaction data, client files and other records should be kept for a specific period of time, because they are likely to be used as evidence in disputes, he said.

Smaller organizations unable to maintain an internal dedicated IT and legal team to handle e-discovery issues could outsource the task, said Info-Tech’s Warren.

For example, she said companies can seek outside legal advisors specializing in e-discovery to help them create an appropriate strategy for their operations.

Businesses can also hire third party companies that provide data storage services or purchase e-discovery appliances or software specifically designed to collect pertinent data from the company network and manage storage, retrieval and data lifecycle, Warren said.

Any e-discovery system must protect data from unauthorized access, ensure the authenticity and integrity of records by preventing alterations and provide data back-up and disaster recovery features.

In Canada, there are initiatives to ask the courts to limit the number and scope of e-documents to be presented in court, according to one Toronto-based e-discovery expert.

Current laws stipulate that parties given notice to produce documents must surrender “all” data relevant to the case.

“The problem for most firms is the cost of retrieving relevant data might be well over the amount they are being sued for or are suing for,” said Jennifer Dolman, partner in the litigation department of Osler, Hoskin, & Harcourt LLP.

She cited the 2006 case of Air Canada vs. WestJet Airlines Ltd. in which Air Canada sued WestJet for alleged corporate espionage but sought a court order waiving its responsibility to manually review an estimated 75,000 electronic documents deemed relevant to the case.

Less than a month later, the two airlines reached a settlement in the case.
Almost any information can be called up and the amount of e-mails companies send and receive each day has the potential to drive up retrieval costs, said Dolman.

Companies, she said, should begin instituting policies that take e-discovery into account to limit legal risk and financial liabilities
For example, there should be in-house rules on what communications can be transmitted through company PC, laptops and BlackBerry devices, she said.

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