Dennis Connolly, a partner in Alston & Bird’s Bankruptcy Group, is an active member of the ABA Electronic Discovery in Bankruptcy Working Group formed to study and prepare guidelines and a best practices summary on the scope and timing of a party’s obligations to preserve and produce electronically stored information (ESI) in bankruptcy cases.
The group recently produced the “Best Practices Report on Electronic Discovery (ESI) Issues in Bankruptcy Cases,” which is intended to provide a framework for dealing with ESI issues in bankruptcy matters and to highlight certain guiding principles that should be considered.
ESI is a hot topic, and has been for a few years now. What is the background of the issue, and its central controversy?
The issues of ESI have been developing over the past 10 years as the courts have dealt with document retention and document spoliation issues. A number of leading decisions, including the so-called Zublake decisions, have been issued by the court relating to the duties of litigants in traditional civil litigation. In the bankruptcy context, the issues are often even more complex as the initiation of a Chapter 11 bankruptcy case may trigger a duty to alter longstanding document retention policies (which could involve document destruction in order to save costs). Given the financial circumstances of a company in bankruptcy, the cost issues could become quite significant.
How have ESI issues evolved in the last few years? What precipitated the need for this set of best practices?
The evolution of the ESI issue in the civil litigation context is fairly well developed and there are now a number of cases that have discussed the obligations of parties in this context. In addition, the Sedona principles have been developed in order to assist litigants to understand the cost/benefit issues in the ESI context. Moreover, the Federal Rules of Civil Procedure have been modified on a number of occasions to reflect ongoing technological changes and ongoing review and analysis of the basic principles in order to adjust the protocols and practices to both practical and cost-based realities.
When it comes to ESI, what is the “best” best practice? If you could drill down to one defining principle, what would that be?
In the bankruptcy context, as noted, the issues are very complex. For the so-called debtor-in-possession, there needs to be a recognition of the principle of proportionality in that the debtor is, obviously, under severe financial distress (otherwise, they would not be a debtor), and the issues that may arise in the context of a Chapter 11 case may or may not engender litigation with various counterparties (including creditors, equity holders and others). The litigation issues may not be clear at the outset of a bankruptcy case and, thus, the duties and obligations should be carefully considered by the company and its counsel in this regard. A primary driver of the best practices report is the need for careful consideration of the issue and some need for analysis of the costs and the benefits (proportionality) in this context, and there are times when document retention will be quite expensive for the company and create additional liquidity constraints. In addition, creditors (and perhaps litigation “targets”) may need to consider the ESI issues as well.