Mr. Brewer III

Hospitality Law

Managing a Major Hotel Lawsuit: How Electronic Discovery Can Make - or Break - Your Case

By William A. Brewer III, Co-Founding & Co-Managing Partner, Bickel & Brewer

Explosive Growth of Electronic Information - The Challenge

Information today is shared at the speed of light - in volumes never before imagined. A recent study from the University of California at Berkely estimates that worldwide e-mail generates about 400,000 terabytes of new information each year (more than 40,000 times the amount of information found in the entire print collection of the U.S. Library of Congress) and that instant messaging generates 5 billion messages per day. This communication explosion requires that hospitality companies, and their lawyers, focus their attention on developing efficient data management policies and procedures.

Although electronic data can be easier to search than paper documents, the sheer volume alone is often overwhelming. Separating business from personal communications can be extremely difficult. Even more daunting is the task of distinguishing relevant communication from non-relevant. In hospitality litigation, those challenges can result in enormous discovery burdens and related costs. Companies must rethink their approach to data storage, retention, classification, and retrieval.

Consequences of Poor Data Management

The recent demise of companies such as Enron, Worldcom and Global Crossing has put the spotlight on electronic communications and related document discovery. In the wake of these corporate scandals, the Sarbanes-Oxley Act of 2002 established new rules for corporate governance. Provisions of these rules apply, to some degree, to all publicly-traded companies, including those that make-up the hospitality industry.

One of the provisions of the Sarbanes-Oxley Act is Title VIII-Corporate and Criminal Fraud Accountability, in which Section 802 adds United States Code SS1519 and SS1520. These codes speak to the destruction, alteration or falsification of records in federal investigations and bankruptcy, and to the destruction of corporate audit records, respectively. The failure to comply with these codes can include fines, imprisonment, or both.

The threat of non-compliance demands that hospitality companies develop and implement policies to effectively store and manage electronic documents, especially e-mails.

Regulatory Requirements and Risk Management

SEC Rule 17a-4 is one of the principal rules that regulate document retention. It requires retention of originals and copies of communications sent by exchange members and securities brokers and dealers "relating to business as such." In 1977, the SEC recognized the concerns over application of Rule 17a-4 to e-mail communications and provided guidance that sharpened the focus of what must be retained.

Even so, businesses today still face the dilemma of what to keep. Businesses must decide how long information should be retained, and in what format. In addition to compliance with regulatory requirements governing record keeping, companies must address a myriad of related risk management issues that may arise from litigation. Management must recognize its responsibility to plan for litigation and implement effective policies and practices that address how electronic communication is to be used, stored, managed and, ultimately, easily retrieved.

What Keeps Your Lawyer Up at Night

Notwithstanding a company's document retention policies, at the commencement of any litigation no one should delete any electronic documents. In addition, if a system includes automatic deletion of electronic data, particularly e-mails from employee mailboxes, this feature must be disabled.

When dealing with electronic documents, the risk of spoliation, or the destruction or material alteration of evidence, must be carefully considered. The term includes the failure to preserve evidence. Electronic documents, by their nature, are more susceptible to alteration or destruction. Companies and their lawyers must develop a thorough understanding of the company's retention and destruction policies.

Lawyers preparing to move into the discovery phase of complex commercial litigation are often stunned by not only the sheer volume of electronic data, but also the multiple areas and media where it is stored. Discoverable information may be maintained not only on central network servers but also on back-up tapes, discs, desktop and laptop computer drives, and hand-held communication devices. One of the first charges for management and legal counsel should be to identify the storage sources of discoverable information.

The cost of electronic discovery can be staggering - quickly amounting to millions of dollars. There are two major categories of costs: 1) the direct costs of retrieval and production media and, 2) the lawyers' review process to determine what documents are responsive to the requests for production and what documents are privileged.

In a recent case represented by Bickel & Brewer involving a major hotel operator, millions of pages of electronic documents, in addition to thousands of boxes of paper documents, were produced to the opposing side. The review of the produced electronic files, which included e-mails, related attachments in multiple formats, and custodian-shared database files, involved thousands of hours of attorney and consultant time, and cost several million dollars. Although staggering in cost and effort, it could easily have been much more time intensive if not for advanced planning, coordination among attorneys and in-house consultants, and the effective use and management of third party document service providers.

Accordingly, advance planning that includes identification of the type and format of electronic documents involved - e-mails, text files, spreadsheets, and graphics, for example - is critical when assessing a major hospitality dispute.

Role of Forensic Computer Experts

Depending on the case and related cost considerations, the retention of a forensic computer expert should be considered to help assess the client's systems, internal controls, storage media, and the ability of client personnel to assist in the discovery process. The forensic expert can also help to identify the not-so-obvious areas where discoverable data may be lurking, such as files thought to have been deleted.

Shifting the Burden - How Electronic Documents Will Be Produced

Another important consideration is how the electronic documents will be produced, which can include copies to disc, copies to hard drives, and hard copy "blow-backs," or hard copies created from electronic images.

In very large cases, consideration should be given to making documents available to legal counsel through secure Web sites that can be easily accessed with confidential PIN numbers. This approach controls resources expended on duplicate production, and clearly serves as another area where a forensic computer expert can help.

**Summary **

In summary, the rules on electronic discovery are continuing to evolve. Hotel industry executives - and those who advise them - must face the challenges with careful planning to not only control costs, but also to comply with discovery requirements and to effectively prepare for future legal exposure. The opportunity for disaster due to comments and disclosures in an e-mail or its attachment(s) has never been more pronounced.

Making Your Case: The Golden Rules of Electronic Discovery

William A. Brewer III is co-founding and co-managing partner of Bickel & Brewer, with offices in Dallas and New York. Under Mr. Brewer's direction, Bickel & Brewer has become renowned for its innovative handling of disputes within the hospitality industry. For the past decade, Bickel & Brewer has represented hotel franchisors, management companies, owners, developers and investors in the highest profile litigation in the hospitality industry. He is a member of various philanthropic organizations, including the New York City Partnership and the Board of Trustees of Albany Law School. Mr. Brewer III can be contacted at 214-653-4811 or wab@bickelbrewer.com Extended Bio...

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