Los Angeles ~ May 7 & 8, 2007

2007 Employment Practices 2007 Employment Practices & Fiduciary Liability & Fiduciary Liability

SymposiumSymposium

THE IMPACT OF THE ELECTRONIC REVOLUTION ON EPLI

Moderator: Joseph A. Starr, Partner, Lipson, Neilson, Cole, Seltzer & Garin, P.C.

Panelists: Adam Deutsch, President, Synergy Intelligence Holdings

Jason Fogg, Managing Claims Attorney, Monitor Liability Managers, Inc.

Paul A. Sullivan, RPLU, CPCU, Vice President, Hartford Financial Products

THE ELECTRONIC THE ELECTRONIC REVOLUTIONREVOLUTION

• A company with 1,000 employees will likely produce as many as 100,000 e-mails every business day.

• The Digital Evidence Project of the American Bar Association’s Information Security Committee estimates that over 11 trillion e-mail messages will be sent during 2007.

• The Sedona Conference estimates that:– At least 93 percent of information is first generated in

digital format;– 70 percent of corporate records may be stored in

electronic format; and– 30 percent of electronic information is never printed to

paper

THE NEW THE NEW E-DISCOVERY RULESE-DISCOVERY RULES

• A Brief Overview of Changes to the Federal Rules of Civil Procedure

– Rule 16 encourages the parties to address in the initial scheduling order the issues surrounding discovery of Electronically Stored Information (“ESI”). Rule 26(f) directs the parties to discuss the discovery of ESI during their discovery planning conference and to consider issues including the capabilities of the various computer systems used by the parties, the form or forms in which ESI could be produced, whether the information is “reasonably accessible” and the preservation of discoverable ESI.

– Rule 26(b)(2)(B) provides that a party need not provide discovery of ESI that it identifies as not reasonably accessible because of undue burden or cost, although such information is subject to preservation. The burden is on the producing party to show that the information is not reasonably accessible, and courts may still order discovery if the requesting party can show good cause, and the costs are outweighed by the potential benefits of providing the ESI.

THE NEW THE NEW E-DISCOVERY RULESE-DISCOVERY RULES

– Rule 34(a) allows the requesting party to specify form(s) in which ESI will be produced. When the requesting party does not specify the form, the responding party must produce ESI in the form in which it is ordinarily maintained or a form that is reasonably usable, but may not produce it in a form less useful or searchable than the form in which it is normally maintained.

– Rule 37, which provides for sanctions when a party fails to make disclosures or cooperate in discovery, is amended to address the operation of computer systems, which are often designed to automatically delete or overwrite ESI after a specified period of time or when certain data volume limit is reached. Rule 37(f) provides that a court generally may not sanction a party under the rules for failing to produce information. Notably, the steps taken by a party to effectively implement a litigation hold are considered in deciding whether a party acted in good faith. Additionally, the committee notes explain that implementation and design are considerations for evaluating whether the operation was routine and in good faith.

DOCUMENT & DATA DOCUMENT & DATA RETENTION POLICIESRETENTION POLICIES

• Balancing Storage Issues Against the Destruction of Evidence:– Most e-mail retention policies balance the desire to delete

messages with a company’s compliance requirements, business needs and other factors.

– Many firms save e-mail for finance and senior executives for seven years to comply with Sarbanes-Oxley.

– Human Resources save messages for five years to comply with federal regulations such as OSHA and the FMLA.

• Loss Control:– Why aren’t insurers asking about document retention

policies on their applications?* Soft vs. Hard Market?

THE “BIG” QUESTION: THE “BIG” QUESTION: HOW MUCH IS THIS HOW MUCH IS THIS

GOING TO COST?GOING TO COST?

• A Sample Fee Schedule for Computer Forensics and E-Discovery– Computer Forensics

* Computer forensics examiner - $200/hour* “Cloning” a 300 GB Hard Drive - $500* Forensic Preservation and Extraction (500 GB) $4,000, per drive

– E-Discovery* Extraction, e.g., keyword searching - $560 per GB* “Native Production”

– Native Document, metadata, text - $840 per GB– Native Document, metadata - $560 per GB– Metadata, text - $560 per GB

* TIFF Production - $0.06 per TIFF* Other Fees

– Tape Restoration – “Call”– Password Cracking – “Call”

• English Translation – Please!

– One Megabyte of Data = 1,000 to 1,400 of printed pages

– One Gigabyte of Data = 100,000 to 140,000 printed pages

– Five Banker Boxes = 15,000 pages

– 1 PC Hard Drive = Five to 10 Banker Boxes of Paper

– One 650 DLT Backup Tape = 500 Banker Boxes of Paper

– (Over One Million Pages)

Some Examples of Some Examples of E-Discovery CostsE-Discovery Costs

• AAB Joint Ventures v United States, 2007 WL 646157 (Fed. Cl., February 28, 2007)

– The estimated cost of restoring backup tapes to retrieve e-mails cost between $85,000 and $150,000.

– Defendant’s decision to transfer the e-mails to back-up tapes does not exempt Defendant from its responsibility to produce relevant e-mails.

– To determine if cost-shifting to the requesting party was appropriate, the Court employed the marginal utility test – the Court must balance the likelihood that restored documents will prove relevant to the instant litigation with whether the cost of restoration places an undue burden on Defendant.

– Court found:* $85,000-$150,000 is small in comparison to the amount of the suit, which is over $30

Million.

* This does not include the costs associated with having defense attorneys sort through e-mails to identify those that are responsive to Plaintiff’s discovery requests.

* Solution: a phased approach (starting with one-fourth of the total back-up tapes) where Defendant restores a portion of the back-up tapes from specified periods from the Plaintiff. Then the Court can engage in a more meaningful benefit-burden analysis before determining whether to require cost-shifting or cost-sharing.

– Quinby v WestLB A.G., No. 04 Civ. 7406, 2006 WL 2597900 (S.D.N.Y., September 5, 2006

* Defendant incurred $226,266.60 restoring and searching inaccessible e-mails of six former employees.

– Murphy Oil USA, Inc. v. Flour Daniel, Inc.* Plaintiff requested e-mails from more than 700 employees.

* The e-mails had been saved to 93 back up tapes and cost the organization six months and $6.2 million to restore.

– Best Buy Stores, L.P. v. Developers Diversified Realty Corp., 207 WL 333987 (D. Minn., Feb. 1, 2007)

* Defendant cannot make conclusory statements that the cost of retrieval of electronic documents from an electronic archive may be prohibitive.

• According to the Chicago law firm of Vedder, Price, Kauffman & Kammholz, the cost of retrieving and reviewing e-mail can be as much as $2.00 per message.

• Neal Rubin, senior litigation counsel at Cisco Systems, asserts that the cost of e-discovery is $1,200 for every person who has information relevant to a case.

• Most Judges need to be educated regarding the technical aspects of e-discovery.

IMPACT UPON IMPACT UPON SETTLEMENT OF A CLAIMSETTLEMENT OF A CLAIM

• The cost and difficulty of producing e-documents has led – and will lead – to some opposing counsel to begin using e-discovery as a legal tactic, increasing their e-discovery requests to place financial and hardship burdens upon defendants.

• The New Smoking Gun?– Metadata – data about data, i.e., who created a document, who edited it,

when changes were made and what changes were made– Metadata mining

• Adverse Jury Instructions

• Re-thinking removal to federal court?– State Courts are Not Far Behind

* E.g., April 21, 2007, the State Bar of Michigan Representative Assembly addressed the issue of whether the Michigan Court Rules should be amended to address the discovery of electronically stored information in a manner similar to the recently adopted Federal Rules of Civil Procedures pertaining to electronic discovery.

– Common Law

PROACTIVE MEASURESPROACTIVE MEASURES

• Identify elements of the information technology system that are important for litigation holds and e-discovery.

• Companies must move towards archive systems that easily retrieve e-mails and attachments.

– E.g., EnCase Enterprise eDiscovery Suite (Guidance Software).

* Cost prohibitive?

• Allocating responsibility for implementing holds and producing records.

• Establishing procedures for disseminating information and regular reminders regarding what and how information must be preserved.

• Litigation Strategies:

– Plaintiff’s laptop computer and e-mails – a “gold mine” of information

– “Overwhelm” Plaintiff with E-Discovery Production

– Computer Fraud & Abuse Act (CFAA) – filing a counterclaim for leverage

UNDERWRITING THIS RISKUNDERWRITING THIS RISK

• Proactive vs. Reactive – is this on EPL underwriters radar screen yet?

– Impact upon the average cost of a claim (defense costs and settlement/verdict)

– Examination of an employer’s policies and preparedness for an e-document production

* Does this happen?

– Are brokers willing to ask these questions in the current market?

– How much of this is driven by the market?

INVASION OF PRIVACY INVASION OF PRIVACY CLAIMS IN THE ERA OF THE CLAIMS IN THE ERA OF THE

“ELECTRONIC “ELECTRONIC WORKPLACE”WORKPLACE”

• Invasion of Privacy Claims

– Covered claims under EPLI policies

– Small percentage of all claims

– Will the evolution of the “electronic workplace” impact frequency of claims?

• The Law

– Nearly every communication in the workplace (with certain important exceptions) is private where the employee has a “reasonable expectation of privacy”

– Common Law Invasion of Privacy Claims (Four Types):

* Intrusion upon a person’s seclusion or solitude, or private affairs;

* Public disclosure of embarrassing private facts about an individual;

* Publicity which places an individual in a false light in the public eye; and

* Appropriation, for another’s advantage, of an individual’s name or likeness.

* This creates a case-by-case analysis, i.e., does a particular circumstance give rise to an expectation of privacy so that intrusion by the employer would be objectionable to a reasonable person?

• Lowering the Expectation of Privacy

– How does an Employer/Insured deal with E-mail, Internet, Cell phone, Pager abuse without intruding upon an employee’s reasonable expectation of privacy?

– Lower the expectation of privacy

– Develop and implement an effective Privacy Policy

– The policy should be comprehensive and include substantial penalties if managers or supervisors disclose sensitive employee information even if they legally may have had access to that information.

• Example Policy Language– The policy should include the following language (or something similar)

with regard to e-mail usage* No Expectation of Privacy. No one should assume that any material is private.

Despite system features that give the appearance of privacy - including passwords and the apparent ability to delete messages - messages are not necessarily private.

* Electronic communications may not be secure. The security of electronic files on shared systems often approximates that of a document placed in an unsealed envelope - generally respected, but easily read by someone determined to do so. Accordingly, you should assume that your messages may be heard or read by someone other than the intended recipient. Even when a message is deleted, it still may be backed-up elsewhere or it may be possible to recreate the message. As a result, electronic messages are increasingly proving to be key documents sought through the discovery process in civil and criminal litigation.

* All e-mail is company property and the company reserves the right to monitor the e-mail system

• Case Law Re: Invasion of Privacy in the Electronic Workplace:

– Information/E-mails Stored on Computers in the Workplace

* Former employee filed lawsuit against former employer alleging violation of Fourth Amendment privacy rights for having aided federal authorities in child pornography investigation against him by providing the employee's laptop computer. The Court held that employee had no reasonable expectation of privacy in his laptop files where employer announced it could inspect any laptop furnished to its employee at any time. Muick v. Glenayre Electronics, 280 F.3d 741, 743 (7th Cir., 2002).

* District Court denied Defendant's motion to suppress evidence of child pornography seized from his work computer based upon employee's lack of any reasonable expectation of privacy of information stored on work computer where employer repeatedly warned employee that his computer activities were subject to monitoring. United States v. Bailey, 272 F. Supp 2d 822, 824 (D. Neb, 2003).

* Former employee filed lawsuit against former employer alleging invasion of privacy claiming that it improperly obtained information concerning employee's eBay account (including eBay transactions) during company investigation of employee for fraud. Court held that no reasonable expectation of privacy in records (including eBay account and password) accessed through employer's server if employer advised its employees that their computer activities on the office system were monitored. Campbell v. Woodard Photographic, Inc., 433 F. Supp 2d 857, 861-62 (N.D. Ohio, 2006).

* Former employee file employment discrimination case against former employer alleging invasion of privacy relative to employer's review of employee's computer and e-mail records for purposes of ascertaining alleged inappropriate conduct. Court held no invasion of privacy based upon New York's limited right of privacy law and in the absence of any common law of privacy. Chimarev v. TD Waterhouse Investor Services, Inc, 280 F.Supp 2d 208 (S.D.N.Y., 2003).

* Employee sued former employer for invasion of privacy based upon former employer's having accessed files employee stored in his "personal" folder of employer's computer network and remotely determining the address of the websites employee visited while at work (including her personal Internet e-mail account). Magistrate recommended that no reasonable expectation of privacy existed relative to employee's use of employer's computers and computer network. Thygeson v. U.S. Bancorp, unpublished Findings and Recommendation of Magistrate of the U.S. District Court, District of Oregon dated September 15, 2004 (Docket No. CV 03 467 ST).

* Former employees filed lawsuit following discharge from their employer alleging invasion of privacy relative to employer’s review of employees' "sexually explicit" e-mails contained in personal [password-protected] folders on company's computer system. Court held that employees had no reasonable expectation of privacy where they admitted knowing employer had ability to look at e-mail on company's Intranet system, and knew they had to be careful about sending e-mails [based upon company's e-mail policy]. Garrity v. John Hancock Mut. Life Ins. Co., unpublished Memorandum of U.S. District Court, District of Massachusetts dated May 7, 2002 (Docket No. 00-12143-RWZ)

* Employee sued former employer for invasion of privacy based upon former employer's review and dissemination of e-mail to third parties stored in password-protected "Personal Folders" application on work computer. At time of employer's interception of the employee's e-mails, plaintiff employee had been suspended (pending investigation) into accusations of sexual harassment and "inventory questions." The Texas Court of Appeals held that "a reasonable person would not consider Microsoft's interception of these communications to be a highly offensive invasion" and "the company's interest in preventing inappropriate and unprofessional comments, or even illegal activity, over its e-mail system would outweigh McLaren's claimed privacy interest in those communications." McLaren v. Microsoft Corp., unpublished opinion of the Texas Court of Appeals dated May 28, 1999 (Docket No. 05-97-00824-cv), p. 5.t

• Co-Worker Reading Another Co-Worker's E-mail in Workplace:– Former employee filed suit against former employer and former coworker alleging,

inter alia, invasion of privacy based upon former co-worker reading former employee's e-mail after she stepped away from her desk. Without determining whether reading someone's e-mail could give rise to a cognizable invasion of privacy claim (and thus leaving open the possibility), the Eighth Circuit affirmed dismissal of claim based upon insufficient evidence as to whether former co-worker actually did the act complained of by former employee. Powell v. Yellow Book USA, Inc., 445 F.3d 1074, 1080 (8th Cir., 2006).

• E-mails Disseminated by Employer to Other Employees:– Employee filed suit against Employer for false light invasion of privacy for sending

two e-mails to company employees containing seminar attendance information. The information stated that Plaintiff had attended "The Essentials of Communicating with Diplomacy and Professionalism" seminar implying to a reasonable person that Plaintiff "was hard to work with, was difficult to communicate with,...had engaged in workplace misconduct regarding his interaction with his co-workers and managers, and had negative interpersonal skills, and had negative personality traits." Court held that plaintiff employee failed to state a claim for false light invasion of privacy absent any allegation that seminar information was false or that said information would highly offensive to a reasonable person as required under Arizona law. Hunley v. Orbital Sciences Corp, -- S.W. 2d -- (D. Ariz., 2007) (March 29, 2007), p. 2.

Questions?Questions?