When Data Balloons, So Can Law Costs
Businesses need to face the Himalaya of data looming in the back offices. Manage it before an avalanche of court costs hits, say Alabama legal specialists in e-discovery.
Many Alabama businesses, from small to large, constantly generate electronic data of various sorts, from emails to spreadsheets, receipts and diagrams.
Without a plan to manage that ever-growing amount of electronic data, legal professionals warn, data storage can get out of hand, making a business vulnerable to a costly electronic-discovery process if the business ever faces litigation.
“The costs for searching through a company’s data potentially can be astronomical if the company hasn’t instituted a formal data retention plan to get rid of unneeded data and keep needed data organized and fully accessible,” says attorney Marty Burke, a partner with Burr & Forman, a regional law firm with 11 offices in Alabama, Delaware, Florida, Georgia, Mississippi and Tennessee.
Businesses should first map all the places their electronic data is stored to get a better handle on it, says attorney Ty Dedmon, a partner at Bradley, a law firm based in Birmingham with nine offices across the South and Washington D.C. Because of the collaborative nature of many business procedures, the storage of electronic data used by multiple individuals has become more complicated.
“You need to know where all your data is, that’s why it’s critical to map all the locations where it resides,” Dedmon says.
James Witcher, a member of the law firm Hand Arendall, with offices in Mobile, Birmingham, Fairhope and Athens, points to the need for businesses to keep a clear separation between personal and professional data. Personal information on a laptop or computer used for business purposes or personal emails sent via a business email may also come under legal review.
“Your private information and emails could become part of an e-discovery process,” Witcher says.
Emails should be approached as official business communications, because they will be viewed that way in the event of litigation.
“People get far too informal in their emails. When a company is facing litigation, an email is viewed as if it were a business letter,” Witcher says. “It’s important to use good judgment and remain professional when composing business emails as a habit. Attempts at humor can be misunderstood. Always use appropriate language in company emails.”
As the cost to store electronic data has continued to fall, companies have tended to store more data, rather than sorting through their data to determine what should be saved and what should be deleted on an ongoing basis, Burke says.
“Many businesses tend to hoard their data simply as a habit, keeping data even after it is of no utility to them,” he says. “And that excess data can be a liability, because it can greatly boost the cost of litigation when an attorney has to look through it during an e-discovery process.”
Creating a formal data retention plan can help a business cull its data regularly and keep it at a manageable level. An official plan, routinely followed, can also forestall suspicion that data has been dumped to hide evidence in the event of a lawsuit.
“If out-of-date, unneeded data is deleted on a haphazard versus a regular schedule, it’s too easy to suggest even an innocent deletion is a cover-up,” Burke says. “The opposing attorney can claim the deleted data might have been important to the case.”
Even with a plan, businesses still must follow legal guidelines and best practices for their industry on how long to keep certain types of data. And companies are required to keep any data that applies to a lawsuit that has been filed or might be filed because of a complaint or other dispute. Companies must remain in compliance with court rules, including the Federal Rules of Civil Procedure, in the case of civil disputes.
“Every business should have a person, if not a department, designated to notify staff about data that should be retained in such cases,” Witcher says. “Businesses that complain they didn’t know any better won’t get any sympathy from a judge in a lawsuit.”
While some companies have instituted data management policies and technologies for electronically stored information, many others have not. “Larger companies have come to see the need to address data retention and storage as a risk management issue,” Burke says. “But many midsize and small businesses haven’t gotten with the program and tend to be totally unprepared for potential litigation.”
When the costs to litigate because of e-discovery requirements appear to be overwhelming, businesses that are unprepared or disorganized may feel forced to settle out of court. “Opposing attorneys have used the e-discovery process as a way to wear the other side down,” Burke says.
The good news, says Dedmon, is that federal courts have recently given businesses some relief via “proportionality” rules that can limit the costs of e-discovery based on factors such as the amount of damages being sought. “But for state courts like Alabama’s, it’s completely up to the judge to determine whether an e-discovery request is reasonable,” he says. “Judges tend to be sympathetic to plaintiff requests for information that can potentially prove the plaintiff’s case.”
Another trend that is helping lessen e-discovery load on businesses facing lawsuits is the development of “early case assessment” software tools, which help attorneys comb through a company’s data to help determine which files may have relevance to the case. “Judges are educated to the effectiveness of these tools and tend to accept their use for e-discovery,” Dedmon says.
As the need to manage electronic data for legal purposes has grown, so have the number of companies and technologies designed to assist that need. “The technologies and support services are constantly evolving as business and legal needs develop in response to e-discovery,” Witcher says. “I suspect they will for a long time to come.”
Legal Imaging in Mobile, for example, is a veteran provider that has been helping legal firms, in-house legal departments and others manage, retrieve and search electronically stored information for many years. The litigation technology and services company also aids organizations in developing best practices to methodically organize and manage data, including creating a searchable database. “Our business continues to change with emerging technologies and business needs,” says John Kilpatrick, a managing member of Legal Imaging.
Companies that are proactive in culling their unneeded data and organizing what they keep can see litigation costs reduced by as much as 75 to 80 percent compared to companies that don’t, Kilpatrick says. “Unfortunately our typical client is in the middle of litigation and is behind the curve,” he says. “They often say they just didn’t know they needed to be prepared for e-discovery. We help bring them up to speed as quickly as possible.”
But Kilpatrick says businesses would be much better off to plan ahead and get their electronic data properly organized, formatted to be searched and securely stored. Many techniques for managing electronic data have been automated by business solutions software that is available for purchase or monthly rental via a cloud-based subscription. “Smaller companies that want to avoid a large initial capital expense especially tend to prefer the monthly option and it’s growing in popularity,” Kilpatrick says.
Kathy Hagood and Cary Norton are freelance contributors to Business Alabama. Hagood is based in Homewood and Norton in Birmingham.