“As California goes, so goes the nation” is a phrase that I have heard before and it immediately came to mind when I read that Governor Schwarzenegger had signed California Assembly Bill 5, otherwise known as Chapter 5 – Electronic Discovery Act Signed into law on June 29th, 2009, what makes this law significant is that it expands upon the verbiage used in the Federal Rules of Civil Procedure (FRCP). So for organizations already worrying about the FRCP, take heed because the Electronic Discovery Act takes eDiscovery to yet another level.
Any time California passes a law, especially as it pertains to eDiscovery, the rest of the nation needs to pay attention. California previously set the stage for the nationwide adoption of data breach notification laws with its passage of SB1386 in September, 2002. Since that law went into effect, nearly all states have since followed suit with their own data breach laws (only 5 states have NOT passed similar laws) as well as the federal government.
Organizations that have failed to act and put in place pro-active eDiscovery processes are starting to pay the consequences. The recently published, “2009 Mid-year Update on eDiscovery“, highlights that sanctions in eDiscovery cases against organizations have doubled since 2008. It is important to note the statistic that sanctions were considered in half of every case involving eDiscovery and that they were awarded in 36% of these cases.
This statistic should be a wake up call to all organizations. Clearly many organizations’ eDiscovery efforts are still in the primitive stages and now that most states have passed their own eDiscovery laws and California is coming back for round 2, new risks and ultimately new sanctions are poised to strike yet again.
Some notable points of interest in the Electronic Discovery Act:
- The California law differs from the FRCP in how it approaches data in “a reasonably useable form”. If your company is subject to an eDiscovery request, the burden will be upon you to provide the information in a reasonably useable form. This is a big departure from FRCP. This new wording could lead to a large expense for a company as definitions of a “reasonably, useable form” are worked out.
- Expands eDiscovery beyond inspection and copying to include testing or sampling of ESI. This act expands existing eDiscovery procedures and demands that can be made for inspection of ESI to include copying, testing or sampling of ESI.It also allows for a party to demand that another party of someone acting on that party’s behalf, to inspect, copy, test, or sample ESI in the possession, custody, or control of the party when an eDiscovery demand is made.
- Parties that fail to produce ESI pursuant to a discovery request may face monetary sanctions. This sets a new precedent that organizations must now consider. Before they mostly just had to contend with costs at the federal level. Now the state of California has the power to levy monetary sanctions as well
- Sanctions are prohibited if failure to produce ESI is due to routine, good faith business operations. I consider this California’s version of the safe harbor provision, but as with FRCP, safe harbor can be elusive as evidenced by the aforementioned statistics on sanctions.
There is much more to this act, including more notable departures from the language of the FRCP. Overall this is a detailed act with new risks and eDiscovery considerations that now impact organizations if they end up in the California state court. Like all risks, it all boils down to costs but the big question organizations have to answer is, “What is the cost of complying versus doing nothing and taking a reactive approach to an eDiscovery to deal with it only if and when it hits you?”
This is the big question when it comes to this bill as there are several cost shifting areas for companies to consider which is an aspect that I will tackle in a future blog post. The main question that will need to be answered is how will costs be shifted as part of a discovery notice? There has been precedent in California for cost shifting, in Toshiba v. Superior Ct., but questions still remain if this will continue to be the rule.
It should come as no surprise that eDiscovery is moving front and center at the state level. State courts are not immune to eDiscovery problems posed by electronic documents and shifting evidentiary requirements are caused from ever increasing amounts of ESI.California is no different and it is simply seeking to try to limit the costs of eDiscovery in disputes. But as the FRCP has shown this is much easier said than done.
Companies will need to ensure their eDiscovery strategy not only covers FRCP but also complies with differing state laws.New technology such as Estorian’s LookingGlass will increasingly be needed to ensure ESI such as email can be produced in a reasonably usable form.
Much legal wrangling lies ahead as sides argue over wording, meaning and intent of this law with a lot of information forthcoming as it relates to costs and interpretation.But, there is no doubt that other states will almost certainly follow in California’s footsteps and tackle eDiscovery in their own court systems.As this occurs, the costs and painful consequences for those organizations with inadequate eDiscovery strategies are poised to skyrocket.