NASP 2008 Annual Conference Subro Goes Hollywood! DOTTING AND CROSSING YOUR E’s: E-Discovery and Subrogation NASP 2008 Annual Conference Hollywood, Florida Tuesday, November 4, 2008

E-Discovery is Discovery Begins Upon First Investigation of a Claim • Informal Discovery Often Pre-Litigation Investigation (Interviews, Document Collection, Expert Consultants) • Formal Generally Post-Suit (Authorized by Statute) Ends at Settlement or Trial KJP

A Few Billion Words About E-Mail 210,000,000,000 e-mails are generated per day worldwide. 13,125,000,000 e-mails are generated every 90 minutes. 70% of all e-mails are Spam. 60% of U.S. Internet users prefer reading their e-mails than reading “snail” mail. 34% of U.S. Internet users prefer to send an e-mail than make a telephone call. KJP

Documents 98% of documents are kept in electronic form. 80% of documents are never converted to paper. 90% of documents in circulation began as something else! KJP

Format of Presentation Overview of Federal and State E-Discovery Rules What It Means for Subrogation Practical Applications of E-Discovery The Consequences of the Failure to Preserve and Produce Electronically Stored Information KJP

FRCP E-Discovery Amendments Why the Amendments? To address growing computer-based discovery problems To keep pace with information technology developments To better define the scope of electronic data and information that parties are entitled to discover • The Focus of the Amendments: Electronically Stored Information

Electronically Stored Information (“ESI”) • Refers broadly to any type of information that can be stored electronically Examples of ESI Media: Networks • Voice Mail Computer Files/Data • Cell Phones Hard Drives • Videos Flash Drives • Tapes Thumb Drives • mP3 Portable Storage • Metadata Devices

Rules 33 and 34 Interrogatories [Rule 33] • Specification and summary of ESI in lieu of written answer • Production of ESI in lieu of written answer Production of Documents [Rule 34] • Form of Production of ESI Party may specify the form If not specified, ESI must be produced in the form “ordinarily maintained” or in a “reasonably usable form” Testing and Sampling of ESI

Rule 26 Initial Disclosures [Rule 26(a)(1)] A copy or description by category and location of all ESI must be provided without request Production of Documents [Rule 26(b)(2)(B)] ESI need not be provided if the source is “not reasonably accessible” due to undue burden or undue cost

Rule 26 - Continued Privileged Information [Rule 26(b)(5)(B)] The “Litigation Hold” Receiving Party and Producing Party Obligations Discovery Plan Conference [Rule 26(f)] Counsel for the parties develop a plan for ESI discovery Considerations: Preservation of ESI Issues relating to the discovery and production of ESI (including costs and expenses) ESI privilege/waiver of privilege issues

Other Important New FRCP Rules Scheduling Order [Rule 16(b)] ESI-related party agreement(s) to be included in Order Safe Harbor [Rule 37(f)] No sanctions “absent exceptional circumstances” for failure to provide ESI lost due to the “routine, good faith operation of an electronic information system” Subpoenas [Rule 45] ESI may be specifically sought by subpoena, with the provisions of Rules 33, 34 and 26 applicable

E-Discovery: State Law Trends State E-Discovery Rules • FRCP Remains the Model • Some states adopt • Some states write their own • Many states have done nothing • Departures from FRCP • Early meetings • Specific definitions • Cost shifting; reasonable accessibility

Uniform Rules • Created by the National Conference of Commissioners of Uniform State Laws Drafted as a model for states to follow Substantially similar to the Federal Rules

The Lone Star State: Texas Texas Rule of Civil Procedure §196.4 Circa 1999 Regulates Discovery of “Electronic or Magnetic Data” Requesting party must specifically request and state the form of the production Responding party must produce all data reasonably available If extraordinary steps are required, court must order Requesting Party to bear the cost

The Golden State: California Pending Revisions to the California Code of Civil Procedure Will amend the code to include E-Discovery rules Largely tracks the FRCP No early meeting requirement, no equivalent to the Rule 26 exchange Follows traditional discovery timetables Information not reasonably accessible must still be produced

What it Means for Subrogation Some form of Early Meeting is the norm E-Discovery should be considered at the investigation stage of an action Possibly more expensive and protracted discovery • Litigation budgets should contain E-Discovery line items Could be helpful and/or harmful to a subrogation action – Case-By-Case Analysis Potentially greater settlement opportunity

Using E-Discovery: Pre-Litigation Determine from whom ESI may be sought - the insured and/or the Insurer Thoroughly evaluate the scope of available ESI Ensure preservation of existing ESI, in compliance with the company’s retention policy Minimizes the prospect of adverse consequences in litigation – especially a spoliation of evidence defense Allows Plaintiff to take the “high road” in demanding ESI production from the defendant(s)

Using E-Discovery: Pre-Litigation – Continued Learn the company’s ESI retention, management and use policy(s) Analyze the company’s practice of compliance or non-compliance with the policy(s) Evaluate the potential impact of the company’s ESI and related policy(s) on a subrogation action Assess potential costs and expenses associated with potential production of the company’s ESI Consultant with the appropriate computer specialist(s) Consider the impact of ESI on forum and venue for suit

Using E-Discovery: Litigation Initial Rule 26 Disclosures (if applicable) Specify the form of ESI to be produced Image versus Native formats Other considerations Rule 16 Conference (if applicable) Request the Order to require the defendant(s) to identify: all electronic systems and ESI, the means to access it, ESI retention policies, and the most knowledgeable employees/custodians Assess potential costs and expenses associated with ESI discovery, develop a budget and advise the client

Using E-Discovery: Litigation - Continued WRITTEN DISCOVERY Generally Define “ESI” Include instructions for preservation of ESI Consult with computer specialist and/or retained expert(s) Interrogatories Ask for the identity of all relevant ESI (past and present), ESI electronic systems/media, and ESI management, use and retention policies Ask for names, employers, titles/positions and responsibilities of all ESI-relevant persons most knowledgeable, custodians, supervisors, etc. Requests for Production of Documents Request production of ESI documents in desired format(s) Request production of ancillary equipment, tools, etc. to retrieve the ESI

Using E-Discovery: Litigation - Continued DEPOSITIONS Rule 30(B)(6) Deposition(s) – Defendant’s “ESI PMK” Identify and depose PMK on topics relating to scope of ESI (past and present), including ESI electronic systems/media and location Identify and depose PMK on ESI records retention, management and use Identify and depose PMK on retrieval of ESI Identify and depose PMK on ESI topics relating to third parties and other knowledgeable persons Fact Witness Depositions Particularly useful for establishing retention non-compliance and spoliation SUBPOENAS – THIRD PARTIES Use information obtained from written discovery and Rule 30(B)(6) deposition(s) Focus on inconsistencies in testimony and/or documents

Using E-Discovery: Litigation - Continued MEDIATION/SETTLEMENY CONFERENCE Costs and Expenses factor “Smoking gun”–type ESI materials ESI records retention and/or production deficiencies Waiver of privilege and/or Spoliation of Evidence claim ARBITRATION/TRIAL Same as above, PLUS: Potential Public embarrassment factor (works both ways!) POST-LITIGATION Consultation and recommendations regarding future handling of company’s ESI (“preventative maintenance”)

E-Discovery: Pitfalls and Consequences Waiver of Privileges Spoliation of Evidence Sanctions KJP

Sanctions - A Train Wreck Zubulake Decision (NY) Phoenix Decision (NY) Martin Decision (FL)

Sanctions in California: A Yard Sale Qualcom Decision U.S. v. Krause Arthur Anderson - Enron

Conclusion FRCP and State Courts’ E-Discovery Rules Summary Learn Your Company’s “ESI Universe” Ensure the preservation of your company’s ESI Assess costs and expenses & benefits and burdens of ESI discovery – Both Ways! If practical, aggressively use ESI Rules from the outset of litigation throughout discovery in order to: 1) Build and strengthen the subrogation case, and 2) Facilitate settlement Always be mindful of the consequences if your company fails to keep and produce ESI - Take precautionary measures!

FORAN GLENNON PALANDECH & PONZI PC www.fgpp.com George D. Pilja Kevin J. Price 150 South Wacker Drive 2424 S.E. Bristol Street Suite 1100 Suite 300 Chicago, IL 60606 Newport Beach, CA 92660 312.863.5000 949.955.1150 gpilja@fgpp.com kprice@fgpp.com KJP