Electronic Discovery and Arbitration: A Shortcut Through E-Discovery
Irene C. Warshauer[1]
The use of discovery in international arbitration is much more limited than its extensive use in United States litigation or growing use in United States based arbitration, as litigators try to import litigation discovery practices into arbitration.
Introduction
As much communication occurs electronically, production and exchange of documents and datain electronic form, e-discovery, is a component of many arbitrations. The amount of electronic interaction results in an exponential increase in the amount of material that is retained.The cost of storage of electronic documents, while expensive,is much lower than the storage of paper records. This has resulted in the retention of a massive amount of electronic data, because there is no need to discard it. Data retention magnifies the amount of material that is potentially subject to a discovery request. For example, an initial email may be sent to ten people, all of whom forward it to ten others, perhaps adding comments, resulting in 100 emails. Much of the retained data is on back up tapes created for emergency uploading to replace lost data. Back up tapes are not generally retained by subject matter and usually are not easily searchable.
Electronic Documents are Discoverable
Discovery requests for documents in whatever form,however maintained, whether electronic or otherwise are common and arguably include not only records stored on computers, hard drives, back up tapes, servers, CDs, work and personal emails, but alsovoicemail messages and files, PDAs, BlackBerrys, Palms, cell phones,iPods and other portable devices.
There are disputes between parties to an arbitration over the amount of discovery needed for a fair hearing. These range from objections to discovery as “this is arbitration” by those seeking to limit discovery and protestations that even in arbitration “trial by ambush” is not fair from those seeking discovery. Counsel’s positions often change, even in the same arbitration, when the party trying to limit discovery of itself, seeks discovery from its adversary. The appropriate amount of discovery in an international arbitration will vary with the size and complexity of the arbitration, as well as the practices of the forum.
Rules Relating to Electronic Discovery in International Arbitration
Arbitration rules, including those of provider organizations, give some guidancefor parties and arbitrators. Efforts by various providers and users of arbitration to keep arbitration a dispute resolution alternative that provides efficient and cost effective resolution of disputes include emphasis on the limited discovery traditional in arbitration as well as fairness in the result.
Not all of the rules reference e-discovery and, if they do, it may be in a very limited manner.
A. International Centre for Dispute Resolution (ICDR)®,
The International Centre for Dispute Resolution (ICDR), the international arm of the American Arbitration Association, has guidelines for electronic discovery in international arbitrations. The guidelines will apply to all ICDR cases commenced after May 31, 2008 and reflect ICDR’s commitment “to the principle that commercial arbitration, and particularly international commercial arbitration, should provide a simpler, less expensive and more expeditious form of dispute resolution than resort to national courts.”
The ICDR Guidelines for Arbitrators Concerning Exchanges of Information
provision for electronic discovery states:
4. Electronic Documents.
When documents to be exchanged are maintained in electronic form, the party in possession of such documents may make them available in the form (which may be paper copies) most convenient and economical for it, unless the Tribunal determines, on application and for good cause, that there is a compelling need for access to the documents in a different form. Requests for documents maintained in electronic form should be narrowly focused and structured to make searching for them as economical as possible. The Tribunal may direct testing or other means of focusing and limiting any search. (emphasis added)
The ICDR Guidelines also reflect an awareness of the cost of discovery and provide for the requesting party to justify the “time and expense” involved in the request and allow for the allocation of costs of discovery:
8. Costs and Compliance.
a. In resolving any dispute about pre-hearing exchanges of information, the tribunal shall require a requesting party to justify the time and expense that its request may involve, and may condition granting such a request on the payment of part or all of the cost by the party seeking the information. The tribunal may also allocate the costs of providing information among the parties, either in an interim order or in an award.
The ICDR Guidelines provide for an adverse inference, if a party fails to comply with an order directing discovery.
8.b. In the event any party fails to comply with an order for information exchange, the tribunal may draw adverse inferences and may take such failure into account in allocating costs.
B.IBA [International Bar Association] Rules on the Taking of Evidence in International Commercial Arbitration[2]
The IBA rules provide for the submission of documents on which a party relies to the arbitral tribunal and also provide for requests for production of documents. The Preamble provides:
4. The taking of evidence shall be conducted on the principle that each Party shall be entitled to know, reasonably in advance of any Evidentiary Hearing, the evidence on which the other Parties rely.
In general, the documents should be “relevant and material” to the matters at issue. The rules specifically define documents to include electronic documents:
“Document” means a writing of any kind, whether recorded on paper, electronic means, audio or visual recordings or any other mechanical or electronic means of storing or recording information;
Article 3 of the IBA rulesprovide for parties to submit a request to produce documents to the Arbitral Tribunal. A party must meet certain criteria:
3.2 …any Party may submit to the Arbitral Tribunal a Request to Produce.
3.3 A Request to Produce shall contain:
(a)(i) a description of a requested document sufficient to identify it, or (ii)a description in sufficient detail (including subject matter) of a narrow and specific requested category of documents that are reasonably believed to exist;
(b) a description of how the documents requested are relevant and material to the outcome of the case; and
(c) a statement that the documents requested are not in the possession, custody or control of the requesting Party, and of the reason why that Party assumes the documents requested to be in the possession, custody or control of the other Party.
The opposing party may object to the request and provide its reasons to the tribunal, which then rules. The opposing party must produce “all documents in its possession, custody or as to which no objection is made.” 3.4.
The IBA rules provide that all documents produced remain confidential and may only be used in that arbitration:
3.12. All documents produced by a Party pursuant to the IBA Rules of Evidence (or by a non-Party pursuant to Article 3.8) shall be kept confidential by the Arbitral Tribunal and by the other Parties, and they shall be used only in connection with the arbitration.
Under Article 9, the Arbitral Tribunal may exclude from evidence documents it determines would entail an “unreasonable burden to produce” 9.2 (c). With respect to any document ordered to be produced and not produced, “the Arbitral Tribunal may infer that such document would be adverse to the interests of that Party.” 9.4.
C. UNCITRAL
The UNCITRAL Arbitration Rules do not specifically provide for electronic discovery. Rather Article 24 states:
The arbitral tribunal may, if it considers it appropriate, require a party to deliver to the tribunal and to the other party, within such a period of time as the arbitral tribunal shall decide, a summary of the documents and other evidence which that party intends to present in support of the facts in issue set out in his statement of claim or statement of defence.
Presumably this would include electronic records, if a party intends to present such evidence. Note that the UNCITRAL rules provide for the production of documents in support of a party’s position.
D. CPR International Institute for Conflict Prevention & Resolution
The CPR International Institute for Conflict Prevention & Resolution (“CPR”) Rules for Non-Administered Arbitration of International Disputes provide for disclosure in Rule 11:
The Tribunal may require and facilitate such disclosure as it shall determine is appropriate in the circumstances, taking into account the needs of the parties and the desirability of making disclosure expeditious and cost-effective. The Tribunal may issue orders to protect the confidentiality of proprietary information, trade secrets and other sensitive information disclosed.
CPR Rule 9.3a provides for an initial pre-hearing conference for the early identification and narrowing of issues of the arbitration, which provides an opportunity to discuss and agree upon procedures for e-discovery.
9.3 The Tribunal shall hold an initial pre-hearing conference for the planning and scheduling of the proceeding. Such conference shall be held promptly after the constitution of the Tribunal, unless the Tribunal is of the view that further submissions from the parties are appropriate prior to such conference. The objective of this conference shall be to discuss all elements of the arbitration with a view to planning for its future conduct. Matters to be considered in the initial pre-hearing conference may include, inter alia, the following:
a. Procedural matters (such as the timing and manner of any required disclosure; the desirability of bifurcation or other separation of the issues in the arbitration;….)
CPR is working on a protocol on disclosure of documents in arbitration that includes provisions relating to e-discovery.
E.FINRA
The FINRA discovery rules are a combination of the former rules of the New York Stock Exchange and the NASD. Some FINRA arbitrations are international. The
new FINRA Customer Code (Rule 12506) provides that:
parties must produce documents on the relevant Document Production Lists within 60 days from the date that the answer to the statement of claim is due, or explain why production is not possible, or object.
There is no specific reference to e-discovery, nonetheless parties in FINRA arbitrations have exchanged electronic discovery and arbitrators have ordered its production when appropriate.
Additional E-DiscoveryGuidelinesfor Arbitrators and Parties
When discovery disputes are brought to an arbitration panel and the provider organization, if any, does not address e-discovery, what guidelines should the arbitrators use? If there is a choice of law provision in the underlying contract or arbitration agreement the arbitrators will look to the law designated. Arbitrators are likely to consider the discovery practices, if any, of the location of the arbitration and the country of origin of the parties.
A.The Federal Rules of Civil Procedure
In the United States, arbitrators familiar with the Federal Rules of Civil Procedure (“FRCP”)may look to these rules to provide some guidance even though the FRCP provide for very broad discovery not customary in arbitration. These rules and the case law interpreting them can provide some guidance for e-discovery in arbitration, particularly in terms of the types of problems and issues which have arisen in connection with e-discovery.
In 2007, the Federal Rules of Civil Procedure were revised to specifically provide for e-discovery. Since these revisions federal courts been faced with many cases alleging e-discovery abuse. These cases often allege that the party producing discovery 1) did not place a proper litigation hold to preserve electronic data, “did nothing to stop its email system from obliterating all emails after sixty days…,”[3] 2) has not properly defined it search terms, 3) has not searched all the germane sources such as hard drives, computers, laptops, emails, 4) nor provided all responsive materials found.
B. The Case Law
Prior to the revisions of the discovery rules of the FRCP, United States District Court Judge Scheindlincreated a framework for the obligations and responsibility of parties and counsel in connection with e-discovery in a series of decisions involving Laura Zubulakewho sued USB Warburg LLC,[4] for discrimination. The court found that USB Warburg had engaged in extensive discovery abuse.Judge Scheindlin established a standard of necessary steps that must be taken to preserve and produce electronic data, and the factors a court should consider in determining whether to shift the costs of e-discovery, building on the steps adopted in Rowe Entertainment v. William Morris Agency, 205 F.R.D. 421, 428 (S.D.N.Y.2002). The Zubulake factors were modified and adopted by the court in Wiginton v. CB Richard Ellis, 229 F.R.D. 568 (N.D. Ill. 2004). These eight Wigintonfactors are:
1) the likelihood of discovering critical information;
2) the availability of such information from other sources;
3) the amount in controversy as compared to the total cost of production;
4) the parties’ resources as compared to the total cost of production;
5) the relative ability of each party to control costs and its incentive to do so;
6) the importance of the issues at stake in the litigation;
7) the importance of the requested discovery in resolving the issues at stake in the litigation; and
8) the relative benefits to the parties of obtaining the information.
at 571-2.
The issue of who bears the cost of discovery may be less of an issue in international arbitration, as in many jurisdictions the losing party pays the costs and attorneys fees of the winning party.
Costly and sometimes drastic remedies have been imposed.[5] Reading these decisions leads to the conclusion that judges are likely to require additional and potentially more invasive discovery when they believe that a party has not been forthcoming with producing relevant material. Arbitrators may respond similarly to requests for rulings or sanctions related to discovery.
- Obligation to Retain Documents
Once parties are aware of impending litigation and, by implication, arbitration, they are under an obligation to preserve relevant documents. A clear, if extensive, statement of the obligation to preserve recordsunder the FRCP, once litigation is contemplated isIn re Flash Memory Antitrust Litigation, 2008 WL 1831668(N.D.Cal. April 22, 2008):
All parties and their counsel are reminded of their duty to preserve evidence that may be relevant to this action. The duty extends to documents, data, and tangible things in the possession, custody and control of the parties to this action, and any employees, agents, contractors, carriers, bailees, or other non-parties who possess materials reasonably anticipated to be subject to discovery in this action. “Documents, data, and tangible things” shall be interpreted broadly to include writings, records, files, correspondence, reports, memoranda, calendars, diaries, minutes, electronic messages, voice mail, E-mail, telephone message records or logs, computer and network activity logs, hard drives, backup data, removable computer storage media such as tapes, discs and cards, printouts, document image files, Web pages, databases, spreadsheets, software, books, ledgers, journals, orders, invoices, bills, vouchers, check statements, worksheets, summaries, compilations, computations, charts, diagrams, graphic presentations, drawings, films, charts, digital or chemical process photographs, video, phonographic, tape or digital recordings or transcripts thereof, drafts, jottings and notes, studies or drafts of studies or other similar such material. Information that serves to identify, locate, or link such material, such as file inventories, file folders, indices, and metadata, is also included in this definition. Until the parties reach an agreement on a preservation plan or the Court orders otherwise, each party shall take reasonable steps to preserve all documents, data, and tangible things containing information potentially relevant to the subject mater [sic] of this litigation. In addition, counsel shall exercise all reasonable efforts to identify and notify parties and non-parties of their duties, including employees of corporate or institutional parties, to the extent required by the Federal Rules of Civil Procedure.
Parties who fail to place a proper litigation hold on discovery materials havebeen sanctioned in a variety of ways, including being ordered produce many more sources of material, pay fees and expenses of opposing counsel. The searching and production of backup tapes, which can be very expensive, has been ordered when counsel and the parties have not taken the proper steps to preclude the destruction of electronic data from more accessible media.
For example, in Disability Rights Council of GreaterWashington v. Washington Metropolitan Area Transit Authority[6], the court ordered the production of backup tapes stating:
Remarkably, although the complaint in this case was filed on March 25, 2004, WMATA acknowledges it did nothing to stop its email system from obliterating all emails after sixty days until, at the earliest, June of 2006.
More specifically, Mr. Oswald Johnson, Senior Technical Systems Specialist for WMATA, testified at a hearing before this Court on February 28, 2007, that Groupwise is WMATA's official email system and it is programmed with an automatic deletion feature that deletes any email after it has been in existence for sixty days. This applies universally whether the email is unread, in a folder that the sender or recipient has created, or in the user's “Sent” or “Trash” folders. While the user may defeat this feature by archiving the email, i.e., placing it in a location of the user's choosing in an encrypted format, the majority of WMATA employees apparently did not do this. As a result, with the exception of three individuals, there has been a universal purging of all possibly relevant and discoverable emails every sixty days at least since the complaint was filed three years ago.(references and footnotes omitted) at 145-146.
- Obligation to Produce Properly Requested Documents
Both parties and attorneys have been sanctioned under the FRCP for failure to properly perform their discovery obligations. The most egregious recent case is Qualcomm Inc. v. Broadcom Corp., 2008 WL 66932 (S.D. Cal. January 7, 2008) (“Qualcomm”). This case involved the failure of Qualcomm to produce tens of thousands of documents requested by Broadcom. Magistrate Judge Barbara L. Major imposed sanctions on Qualcomm and many of its counsel, including attorneys’ fees of over $8 million and referred “the Sanctioned Attorneys to the State Bar of California for an appropriate investigation and possible imposition of sanctions.”