Federal Rules of Civil Procedure; e-Discovery;

What's it all about Alfie?

As if credit professionals don't have enough to worry about already, a 'newold' item has reappeared on their desk-tops. The Federal Rules of Civil Procedure (FRCP) were originally established in 1938 and have been revised periodically since that time. The most recent revision became effective December 1, 2007. The rules of FRCP govern the procedures in all civil actions and proceedings in the United States district courts, except as noted in Rule 81, These rules do not apply to prize proceedings
in admiralty governed by 10 U.S.C.§§ 751-76811.

During the NACM (National Association of Credit Management) Credit Congress held May 18-21 in Louisville, KY, I asked approximately a dozen credit professionals if they were familiar with FRCP and whether or not their employers had a formal, written policy and procedures in place covering record retention. More than ninety percent of those polled were not familiar with FRCP. More than ninety-five percent replied that their employers did not have a formal policy and procedures in place and five percent indicated that they thought their firms followed government" guidelines for record retention.

More recently, I polled some fifty credit professionals and attorneys, asking two simple questions: 1) How many companies—by number only, public or private, do you know of that have written policy and procedures in place that satisfy the requirements of FRCP? 2) In your opinion is this an area that more companies should be concerned with?

Thankfully, more than half of those polled responded. The credit professionals who did not respond were probably too busy putting out the latest brush fire to answer. The attorneys who did not respond were probably two busy answering discovery motions in their latest creditors' rights litigation or preference defense case to answer. Of the sixty percent, or so credit professional who responded indicated that they had worked for, or knew of only 1 or 2 large firms that had formal policy and procedures in place. While the majority of credit professional respondents felt that companies should be concerned with record retention, they didn't feel that this was their responsibility."

While only about half of the attorneys who were polled responded to our questions, those who did indicated
that few, if any of their client firms had formal policy and procedures in place. And, while most respondents felt that more firms should be concerned, they usually aren't until it comes up in a law suit. One respondent indicated
that he has shied away from filing actions in Federal Court because of clients' inabilities or unwillingness to take on such issues.

As a credit professional, you may be saying to yourself, what's the big deal?" The big deal" is this: once your employer (and your credit department is usually the first to know), is aware of pending litigation against it, any and all documents relating to the business relationship between the plaintiff (usually your customer or debtor) and your employer (now the defendant) must be identified, preserved and produced in answer of any futurediscovery motion. The legal description of this action is known as a litigation hold."

OK, so we now have your attention. And, as a credit professional, you're probably wondering why do I have to be saddled with this responsibility?" The answer is of course, if you don't do it, it won't get done." What documents or information should I be concerned with? You may ask. The answer is everything" related to the business relationship between your employer and the debtor or plaintiff. Such documents include, but are not limited to, contracts of sale, purchase orders, shipping/receiving documents, invoices, check copies, wire transfer receipts; cash application records, accounts receivable ledgers (aging reports); any and all hardcopy or electronic correspondence, including emails sent and/or received. Pertinent documents may be found on desktop computers, laptop computers, computer network servers, data warehouse storage devices, PDAs, flash drives, aka thumb drives, voice mail servers and any electronic devices used remotely to transact company business, to name a few locations.

Sounds like a lot of extra work doesn't it? What's the worst that can happen if a party doesn't impose a litigation hold? As seen in the case of Zumulake vs. UBS Warburg, 02 Civ. 1243 (S.D. NY)2 the court ruled that a party to litigation must preserve e-information by taking the following steps:

• Place a litigation hold on all potentially relevant e-information and notify all key employees of that hold;
• The duty to preserve and produce documents rests on the party;
• Notify key employees how e-information is stored and is to be turned over the other party.

Additionally, the court ordered monetary sanctions against UBS Warburg for failing to preserve relevant e-information and the jury empanelled to hear the case was given an adverse inference instruction with respect to deleted e-mails.

In a Postscript" to its decision in this matter, the court stated, The subject of the discovery of electronically stored information is rapidly evolving. When this case began more than two years ago, there was little guidance from the judiciary, bar associations or the academy as to the governing standards. Much has changed in that time. There have been a flood of recent opinions—including a number from appellate courts—and there are now several treatises on the subject. In addition, professional groups such as the American Bar association and the Sedona Conference have provided very useful guidance on thorny issues relating to the discovery of electronically stored information. …"3

Another case involving identification, preservation and discovery of e-information was Viacom International,
Inc., et. al. vs. YouTube, Inc., YouTube, LLC and Google, Inc. 07 Civ, 2103 (LLS), SD, NY. The court's opinion and order dated 7/2/08 states in part, Plaintiffs move jointly pursuant to Fed. R. Civ. P. 37 to compel YouTube and Google to produce certain electronically stored information and documents, including a critical trade secret: the computer source code which controls both the YouTube search function and Google's internet search tool Google.com". YouTube and Google cross-move pursuant to Fed. R. Civ. P. 26(c) for a protective order barring disclosure of that search code….." 4 The court's conclusion in its opinion and order read in part, 1) The cross-motion for a protective order barring disclosure of the source code for the YouTube.com search function is granted, and the motion to compel production of that search code is denied;…...4) The motion to compel production of all data from the Logging database concerning each time a YouTube video has been viewed on the You-Tube website or through embedding on a third-party website is granted;….6) The motion to compel production of the schema for the Google Advertising database is denied; 7) The motion to compel production of the schema for the Google Video Content database is granted; and the motion to compel production of the private videos and data related to them is denied at this time except to the extent it seeks production of specified non-content data about such videos".5

The case of Scott Sidell v Structured Settlement Investments, 08 Civ 00710, CT, centers on an employees right to privacy with regard to personal e-mail accounts. Plaintiff's complaint filed 5/8/08 includes the following statement, …...Following the August 24, 2007 meeting, and the abrupt and groundless termination of his employment,
Sidell returned to his office to collect his personal effects before the office locks were changed. In the rush to gather his belongings, he did not turn off the computer in his office. Apparently, his personal Yahoo e-mail account remained active on the office desktop computer, so that his Yahoo account could be accessed without entering his password for a period of up to two weeks."; ….."Unaware that his Yahoo e-mail account remained accessible in his former office in Connecticut, Sidell continued to use his personal Yahoo e-mail following his termination, to communicate with, among others, attorneys concerning his termination. He did so from home using his personal computer."6 This case is still pending in at this time.

The three cases cited above should serve as reminders to credit professionals, regardless of position or company size, that just about anything and everything related to transactions between your employer and its customers can be subject to FRCP. If your employer does not have a formal, written policy and procedure for identifying, preserving and producing documents relating to a litigation matter, now is the time to develop and implement one.

In developing such a policy and procedure, companies should include provisions dealing with the following:

• Responsibility for oversight; scope of responsibilities
• Proper identification and retention of relevant records/information
• Electronic and hardcopy storage facilities
• Security of documents retained
• Routine system purges
• Response to discovery demands

The provisions listed above are but a few of those companies should consider in the development of a retention
policy and procedure. These of course, may vary from one company to another.

1- www.akd.uscourts.gov/reference/rules/frp
2- www.krollontrack.co.uk/buslaw/blt/2005-03-041/weiner.shtml
3- Ibid
4- www.docs.justia.com/cases/federal/district.courts/newyork/nysdce/1:2007cv0213/302164/117
5- Ibid
6- www.news.justia.com/cases/featured/connecticut/ctdce/3-2008cv00710/81493