ABA’s Electronic Discovery in Bankruptcy Working Group Provides Much Needed Guidance on Electronic Discovery Issues Applicable to Bankruptcy Cases

Although the production of electronically stored information has been the source of significant discussion in the federal civil context, bankruptcy practitioners have had little guidance on the issue. This concern was recently addressed by the ABA Electronic Discovery in Bankruptcy Working Group, through its publication of Best Practices Report on Electronic Discovery (“ESI”) Issues in Bankruptcy Cases.

ESI poses unique challenges in the bankruptcy context, where the estate often has limited assets and/or is being liquidated or reorganized by a trustee that does not have institutional knowledge of the underlying business. Bankruptcy cases usually proceed in an expedited manner and efficient administration of the estate is necessary so as not to deplete the limited assets. The burden of many of these challenges can be lessened through careful planning starting at the outset of the case and communication between interested parties.

Through its report, the working group, comprised of judges, attorneys and academics, provides a practical approach to ESI issues in bankruptcy cases adapted from ESI principles applicable in the federal civil context. The report is divided into six sections and sets forth principles and guidelines in each of the following circumstances: (i) large Chapter 11 cases; (ii) middle market and smaller Chapter 11 cases; (iii) Chapter 7 and 13 cases; (iv) proofs of claim and objections to claims in bankruptcy cases; (v) issues specific to creditors in bankruptcy cases; and (vi) adversary proceedings and contested matters. In the context of all six categories, the working group applied the following general ESI principles:

1. the timing and scope of a party’s duty to preserve ESI is fact sensitive but indisputably applies to bankruptcy cases;

2. a party is not required to preserve every document or piece of information;

3. proportionality considerations should be applied to balance the first two principles; and

4. communication between the parties is essential to the efficient resolution of ESI issues.

The ABA report recognizes that the amount of resources devoted to ESI should be based on the complexity of the case and size of the assets in controversy. In complex cases, the court may approve an ESI protocol early in the case and the debtor may appoint an individual to serve as the ESI liaison responsible for responding to third party ESI inquiries. To its report, the working group attached a form ESI protocol and proposed order that address common ESI issues and provides for the non-waiver of attorney client privilege and work product pursuant to Federal Rule of Evidence 502(d). The working group explained, the process is fluid and any protocol must be revised as the case evolves and new issues emerge. Further, the parties should attempt to resolve any dispute before seeking relief from the court since, “the potential benefit of conferring is heightened in bankruptcy cases.”

In the context of a creditor’s ESI obligations, the working group noted a temporal asymmetry that exists between a creditor’s preservation obligation, which may be triggered as early as the filing of a claim, and a debtor’s obligation that does not arise until an objection to that claim is reasonably foreseeable. The creditor’s claim was likened to a plaintiff in general civil litigation that has a preservation obligation once litigation with the potential defendant is reasonably anticipated. This example illustrates another theme of the report. Traditional ESI principals such as The Sedona Principles (Second Edition): Best Practices Recommendations & Principles for Addressing Electronic Document Production are applicable and should be adapted in the bankruptcy context. This position is consistent with the Federal Rules of Bankruptcy Procedure, which incorporates much of the federal rules of procedure relating to discovery, production of ESI and sanctions to adversary proceedings.

As indicated above, the ABA report fills a void and provides much needed guidance on electronic discovery issues relevant to bankruptcy cases. One thing is clear from the report, it is essential for bankruptcy counsel to consider ESI early to mitigate the burden of discovery. Such planning is necessary to efficiently identify, preserve and collect ESI given a debtor’s financial constraints and the limited assets available to creditors.