Protecting Yourself Against E-illiteracy Avoid Being Duped

Journal Issue

Sep 2004

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Editor's Note:

See a related article by Matthew Schwartz and Anthony Cecil in this issue.

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The world of electronic
data discovery (EDD), as it is called in litigation, is the current
"hotbed" for vendors that are adept in finding the way to the
hearts of attorneys involved in litigation. How difficult could that be,
considering the e-illiteracy existing in bankruptcy litigation? The only
problem is you may find yourself being duped during the EDD process.

This article is not about those that win and lose in
litigation; this is about having the wool pulled right over your eyes by
those involved with EDD. How is that done? Easily. Consider this article
required reading to come out of the EDD jungle alive. You will have an
understanding of how, when allowed to go unabated, EDD can twist and bend
the production of documents rules.

It should be no surprise that e-illiteracy cannot
remain in the bankruptcy arena and professionals need to adopt the
"best practices." Indeed, the compulsory disclosure
requirements to FRCP 26(a)(1) became effective Dec. 1, 2000, requiring
parties to disclose the existence of electronic documents and other
information when a lawsuit is started.

Exactly what are we are talking about? Depicting how
information provided by the producing party, including the EDD vendor,
subject to the electronic data discovery request, may have less to do with
compliance than you expect. Bankruptcy attorneys should seriously consider
the following probative questions related to EDD. However, remember that
this is not intended to be a course on the responsibilities of document
production and responses to EDD request.

• Do you understand that e-mail and electronic
communications often contain attached files that are exchanged internally
and externally?

• Do you understand that e-mail and electronic
communications often seek comments on the information provided in the
attached files sent previously and/or currently?

• Do you understand that e-mail and electronic
communications exchanged between parties often seek comments?<a href="#2" name="2a">2</a>

• Do you understand that e-mail and electronic
communications exchanged between parties often contain attached files?<a href="#3" name="3a">3</a>

• Do you understand that e-mail and electronic
communications will often discuss the state of financial affairs of the
debtor?<a href="#4" name="4a">4</a>

• Do you understand that e-mail and electronic
communications exchanged between parties often include responses to earlier
e-mail and may be part of an extended and continuing thread of
communications between the parties?

• Do you understand that e-mail and electronic
communications threads often only contain a few words—for example
"looks good," "OK," "I agree," "I
talked with them," etc.?

• Do you understand what steps the producing
party and the EDD vendor plan to take for producing EDD, including e-mail
and related file attachments, Instant Messaging (IM) and other forms of
electronic communications?

• Do you understand that the producing party and
the EDD vendor may plan to remove from the production e-mail and electronic
communications they claim are duplicates?

• Do you understand the definition that will be
used for the removal of "duplicates" by the producing party and
the EDD vendor for e-mail and electronic communication?

• Do you understand that if the claimed
duplicates are removed, you may not be able to discover "who, what,
where and when" about those deduplicated
(a.k.a."de-dupe") e-mail and electronic communications?

• Do you understand that when the claimed
duplicates are allowed to be de-duped, only one instance of the e-mail and
electronic communications is produced?

• Do you understand that when the claimed
duplicates are allowed to be de-duped, all e-mail saved by corporate
officers, directors, current employees, past and dismissed employees,
workout and turnaround consultants, and those who may have identified the
existence of fraud, or made a complaint as a whistleblower on corporate
desktop computers, laptops and removable media, will not be included?

• Do you understand that when the de-dupe is
allowed to take place, the possibility of reviewing that e-mail document in
the complete context of the e-mail thread is difficult, if not impossible,
to interpret?

• Do you understand that the producing party and
EDD vendor will claim that providing duplicates and not allowing the EDD
vendor to remove them will increase costs of production?

• Do you understand that the producing party
claim of increased cost is true, but the reason for concern by the
producing party and the EDD vendor is the inherent risk of having multiple
e-mails, including attached files, one coded responsive and the other
privileged?

• Do you understand that if the producing party
and EDD vendor was allowed to remove the claimed duplicate e-mail,
including attached files, even the identity of the individual who sent or
received the electronic communications will affect how it is construed?

• Do you understand if the producing party and
EDD vendor was allowed to remove the claimed duplicate e-mail, including
attached files, the identity of the individual who sent or received the
communications will affect the claim of privilege?

• Do you understand if the producing party and
EDD vendor was allowed to remove the claimed duplicate e-mail, including
attached files, the claim of privilege may depend on who received it?

• Do you understand that because of the
unrestrained use of e-mail, including file attachments, the attorney/client
privilege may be waived for electronic communications when it is sent
and/or forwarded to someone other than the client, attorney and others
involved inside the privilege circle?

• Do you understand that the producing party may
have used a 90-day document retention policy and deleted e-mail, including
attached files, from back-up media?

• Do you understand that the producing party and
EDD vendor does not want to provide the EDD, e-mail duplicates, including
attached files, and electronic files that may be stored on corporate
desktop computers, laptops and removable media used by employees in the
ordinary course and that may already have been deleted from the corporate
back-up media after 90 days under the document retention policy?

• Do you understand that the producing party may
have used a 90-day document-retention policy improperly and deleted e-mail,
including attached files, that would contain important and necessary
corporate records, and financial statements that may not be found on the
back-up media may be stored on corporate desktop computers, laptops and
removable media used by employees in the ordinary course?

• Do you understand that if the producing party
and EDD vendor were allowed to remove claimed duplicate e-mail, including
attached files, for electronic communications sent from the same person on
the same date and with the same description in the subject line and the
same name used for the attached file, that the content may often be
dissimilar?

• Do you understand that the context of the
e-mail, including attached files, is coded by the producing party and this
may be done by a contractor or possibly outsourced offshore, and
interpreting if the e-mail is relevant to the discovery request may depend
on the other e-mail documents included in the thread?

• Do you understand that e-mail, including
attached files may contain what is called "metadata" and this
can provide the "who, what, where and when" you need to know?

• Do you understand that metadata is data about
data and can provide valuable information?<a href="#5" name="5a">5</a>

• Do you understand that unless the request was
made for a digital forensic accounting investigation, the producing party
and EDD vendor will not provide the contents of the "inactive"
data files and "deleted" files existing in the unallocated file
space that may include the "metadata" and "deleted"
e-mail and attached files, electronic communications and the
"debtor's books and records" and "related financial
information" and "documents" located on desktop
computers, laptop computers, servers and removable hard disk drives used by
employees in the ordinary course?

• Do you understand that unless you are using
encryption technology and practicing safe electronic communication for the
protection of the attorney-client privilege and work-product doctrine, your
own electronic data is not safe from prying eyes, and you can be duped,
with no questions asked?

• Do you understand that today you are using
e-mail technology to communicate and tomorrow it will be Instant Messaging,
and it is estimated that 400 million people will be communicating using IM
in less than three years?

• Do you understand that present estimates
suggest that perhaps 40-60 million people are already using IM in business
today?

• Do you still straddle the gap between having a
desktop computer, laptop, PDA, Blackberries and handheld devices, and the
time when typewriters and carbon paper were the main instruments of writing
and business correspondence?

• Do you understand that when you use e-mail,
IM, electronic communications, Wi-Fi laptops, PDA, Blackberries and other
digital devices, and if those involved fail to use encryption technology,
strong pass phrases, security systems and firewalls, you are doing it
haphazardly, causing risk to the confidentiality and the attorney/client
privilege?

• Do you understand how digital fraudsters
operate, and how you can find backdated documents, and that deleting the
books and records and financial information is not in the ordinary course
regardless of the (bogus) document retention plan?

• Do you understand how digital forensic
accounting technology provides the necessary evidence, and when shown to
the debtor, insiders, debtor's auditors, underwriters, board members,
preferred shareholders, insiders, employees, creditors and others, the
parties may want to settle the dispute before it reaches court?

• Do you understand the need to reduce
e-illiteracy in bankruptcy, and do you intend to use encryption technology
for the protection of the attorney/client privilege and work product for
all forms of electronic communications?<a href="#6" name="6a">6</a>

• Do you understand how easily the producing
party and EDD vendor can pull the wool over the eyes of the e-illiterate?

• Do you understand that by avoiding being
e-illiterate in bankruptcy you avoid being duped?

When the bankruptcy attorney is able to see the big
picture and do something about it, you will have taken the first step
necessary for the "best practices" and working toward
eliminating e-illiteracy in bankruptcy. The author recommends that
bankruptcy attorneys and professionals embrace the best practices and use
digital forensic accounting technology<a href="#7" name="7a">7</a> early in a bankruptcy case.

<hr>
<h3>Footnotes</h3>

<a name="1">1</a> Jack Seward
is a consultant and digital forensic accounting technologist in New York
City and veteran of many years of forensic accounting and electronic data
sleuthing. He provides litigation support, including bankruptcy,
insolvency, judgment enforcement and the discovery, recovery and analysis
for electronic data discovery and digital forensic accounting technology
for attorneys, accountants, corporations, creditors, trustees, stockholders
and other interested parties. He may be contacted at (917) 450-9328, fax
(212) 656-1486. <a href="#1a">Return to article</a>

<a name="2">2</a> Including,
for example, corporate officers, corporate directors, audit committee
members, current employees, past and dismissed employees, current and past
auditors, financial advisors, workout and turnaround consultants, loan
liquidators, mergers and acquisitions, tax accountants, offshore partners,
investment bankers, lending institutions, leasing companies, appraisers,
potential buyers, real estate brokers, credit managers, insurance
companies, ASP vendors, computer consultants, related parties and insiders. <a href="#2a">Return to article</a>

<a name="3">3</a> Including,
for example, loan documents, audit reports, internal financial statements,
financial investigations, changed financial statements, spreadsheets,
accounting reports, journal entries, pro forma financial statements, budgets and forecasts, trend
statements, management reports, customer information, vendor information,
tax returns, taxpayer identifications numbers, real estate ownership, joint
venture agreements, inventories, contracts, leases and database files. <a href="#3a">Return to article</a>

<a name="4">4</a> Including,
for example, out of trust, bogus customers and invoices, insider
transactions, capitalizations of loans, backdating transactions and
documents, transfer of property, write-down of assets, related party
transactions, future recovery of bad debts, side agreements, sale of
inventory, offshore entities, off-balance sheet accounts and entities,
planned bankruptcy, insolvency, obtaining credit during insolvency,
payments to creditors, financial representations during insolvency,
fraudulent conduct, executory contracts, accounting fraud and notice from
whistleblower. <a href="#4a">Return to article</a>

<a name="5">5</a> Including
the author, name, initials, company name, computer name, name of the
computer network server or the hard disk drive where the document is saved,
file properties, summary information about the document, names of the last
10 document authors, document revisions, document versions, template
information, hidden text and comments and type of document (Word, Excel,
Power Point Presentation, etc.). <a href="#5a">Return to article</a>

<a name="6">6</a> The author
has recently been published on the subject of protecting the
attorney-client privilege and work product doctrine using electronic
communications. Please see "Practice Tips," LJN
Legal Tech Newsletter, published by the Law
Journal Newsletters, July and August 2004 issues, and Product Liability Law & Litigation Report, published by The National Litigation Bureau, July 2004
issue. <a href="#6a">Return to article</a>

<a name="7">7</a> See the
following articles for an analysis on the subject of discovery, recovery,
and use of e-data in bankruptcy: Seward, J., "The Debtor's
Digital Reckonings," International
Journal of Digital Evidence, Fall 2003 (<a href="http://www.ijde.org/docs/03_fall_seward.pdf">http://www.ijde.org/docs/0…;); Seward, J. and Austin, D., "E-sleuthing and the Art of
Electronic Data Retrieval: Uncovering Hidden Assets in the Digital
Age," ABI Journal, Part I, February 2004, Part II, March 2004 and Part III, April
2004; Seward, J., "The Debtor's Digital Autopsy, or
Where's the Money!" NABTalk® Journal
of the National Association of Bankruptcy Trustees, Summer 2003; "How Digital Forensics Can Give You An
Edge," Bankruptcy Law & Litigation Report, National Litigation Bureau April 2004;
Seward, J., "The Debtor's Survival in the Digital Age," ABI Journal, June 2004;
Seward, J., "Digital Stealth Secrets and the Act," LJN's The Corporate Compliance & Regulatory Newsletter, Law Journal Newsletters, March 2004 (<a href="http://www.ljnonline.com">http://www.ljnonline.com</a>); Brighton, Jo
Ann, and Seward, Jack, "Is it a Capital Contribution or a Loan, and
How Can Electronic Data Assist in the Analysis or Defense of a Claim for
Recharacterization?" AIRA News, Association of Insolvency and Restructuring Advisors,
Part I June/July 2004, and Part II August/September 2004. <a href="#7a">Return to article</a>

Journal Authors

Jack Seward

Journal Date

Wednesday, September 1, 2004 - 12:00

Bankruptcy Rule

2004