Electronic Discovery in Construction Disputes

Although “claw-back” agreements, which require parties to return privileged information produced through inadvertent disclosure, may alleviate the fear of waiver, it is imperative, nonetheless, that all material be reviewed to avoid providing an opposing party with even a glimpse of protected information. Furthermore, depending on the format of the ESI produced by the opposing party, a party may incur further expenses to convert the ESI into a useable format so that it can be reviewed by attorneys and parties.

This article discusses the current ESI law, the impending ESI crisis in arbitration, and how resolving office, industrial and retail claims through alternative dispute resolution helps to corral the burdens of ESI discovery for developers, owners, property managers and contractors by managing ESI with specific agreements, guidelines and rules.

ESI Standards Under Rules Of Civil Procedure

FRCP and most state rules of civil procedure allow for the discovery of ESI that is “reasonably accessible” to the parties. See FRCP 26(a)(1)(A)(ii); FRCP 26(b)(2)(B). Litigants are therefore required to produce all relevant, non-privileged ESI pursuant to a discovery request. See FRCP 34. Moreover, to avoid destruction of potential evidence, litigants must preserve ESI when they have notice that ESI is relevant to litigation or may be relevant to potential future litigation. See, e.g., Zubulake v. UBS Warburg, LLC, 220 F.R.D. 212, 216 (S.D.N.Y. 2003). Therefore, given the time and effort it may take to locate, preserve and produce all discoverable ESI, parties may ask the court to limit the scope of discoverable ESI through a showing of undue burden or cost.

Notably, failure to produce all discoverable ESI could result in sanctions ranging from attorneys' fees and costs to adverse inference jury instructions or a default judgment. See FRCP 37; U.S. v. Philip Morris USA, Inc., 327 F. Supp.2d 21 (D.D.C. 2004) (fining defendant $2.5 million for destroying potentially discoverable e-mails two years after the entry of a preservation order and barred from presenting witnesses at trial who had failed to retain and preserve relevant records); Danis v. USN Commc'ns, 53 Fed.R.Serv.3d 828 (N.D. Ill. 2000) (levying personal fine against the defendant's CEO for failure to take reasonable steps to preserve data at the outset of discovery); Metro. Opera Ass'n, Inc. v. Local 100 Hotel Emps. & Rest. Emps. Int'l Union, 212 F.R.D. 178 (S.D.N.Y. 2003), motion for reconsideration denied, 2004 WL 1923760 (S.D.N.Y. Aug. 27, 2004) (entering default judgment against the defendant when it failed to implement a systematic procedure for the retention of documents, knowing that the client had no document retention plan in place and delegated the document production tasks to a lay person who lacked an understanding of how broadly the term “document” was defined by the document request).

Alternative Dispute Resolution Tribunals

Alternative dispute resolution proceedings (ADR), such as arbitration and mediation, have become popular forums in which to resolve office, industrial and retail construction disputes because ADR is considered less expensive, faster, and more efficient than court litigation. In recent years, however, ADR ' specifically arbitration ' has been criticized as becoming no different from court litigation, due greatly in part to extensive and costly discovery. See ADR Systems of America LLC, Commercial Arbitration Rules at 3 (Aug. 30, 2011). Much of the escalated expense associated with discovery is attributable to the growing use, management and discoverability of ESI. This is generally considered to be e-mail, web pages, word processing files, databases, codes and algorithms, metadata, computer programs, or any other kind of data that can be stored on a computer, blackberry or other PDA.

The three main ADR tribunals, ADR Systems of America LLC (ADR Systems), JAMS, and the American Arbitration Association (AAA), have therefore developed electronic discovery guidelines and rules to assist the parties, advocates and neutrals to deal with requests for electronic discovery, while also maintaining the goals and processes associated with arbitration.

ADR Systems Commercial Arbitration Rules

On Aug. 30, 2011, ADR Systems issued revised commercial arbitration rules to “implement many of the ideas advocated by business and academic commentators to reverse” the trend of arbitration “becoming almost indistinguishable from court litigation.” ADR Systems of America LLC, Commercial Arbitration Rules at 3. These revised rules contain defined limits on the disclosure of ESI during arbitrations. Included in the rules are provisions defining the various types of ESI and related data, as well as “modes” by which parties may agree to disclose ESI. See ADR Systems of America LLC, Commercial Arbitration Rules, Rule 8.4.

JAMS Comprehensive Arbitration Rules and Procedure

Recognizing that ESI “has substantially increased the volume of available document discovery” and “has also substantially increased the cost of the discovery process,” JAMS released the “Recommended Arbitration Discovery Protocol for Domestic, Commercial Cases” on Jan. 6, 2010. In that document, JAMS recommended that the arbitrator issue “an early order” containing language expressly limiting the scope of electronic discovery permitted in the arbitration. Additionally, JAMS provides expedited arbitration procedures that may be incorporated into the parties' agreement to arbitrate or requested in the claimant's post-dispute demand for arbitration. The expedited procedures, found at Rule 16.2, provide specific limits on the discovery of ESI.

AAA Arbitration Rules

Neither the AAA Commercial Arbitration Rules nor the AAA Construction Industry Arbitration Rules contain specific procedures regarding discovery of ESI. However, the AAA Rules provide the parties and the arbitrator with the ability to manage discovery to best suit the needs of the specific matter. Furthermore, the AAA's International Centre for Dispute Resolution (IDCR) developed “ICDR Guidelines for Arbitrators Concerning Exchanges of Information” that can be adopted by parties to other AAA arbitrations by agreement.

Conclusion: Limiting Scope of Discoverable ESI Through ADR Benefits All Parties

It is advantageous to establish ADR agreements before there is a controversy. Limiting the scope of electronic discovery through arbitration agreements, and the rules and guidelines provided by the various ADR tribunals, fosters the following:

• Lower cost dispute resolution;
• Decreased burdens in providing ESI during discovery;
• Comprehensive and focused discovery results;
• Efficient use of the parties' time;
• Fewer barriers to document review;
• ESI produced in a useable format;
• Quicker resolution of disputes;
• Avoiding costs that surpass the goals and value of the dispute; and
• Simplifying the steps to help keep ESI confidential.

Pursuing a claim through ADR with well-defined limits on the scope of ESI enables the parties, attorneys and neutrals to better manage the exchange of information during arbitration, and reach a resolution in a more efficient and less costly manner.

Gregory R. Meeder is a partner in Holland & Knight, with the National Construction Industry Practice Group and is the Regional Construction Practice Group Leader for the Midwest. He handles civil trial matters in state and federal trial courts on a local and national basis, proceedings before governmental and administrative agencies and arbitration proceedings. Livya Heithaus was an attorney with the firm when this article was written. She is currently with Schiff Hardin LLP, based in Chicago.

From bidding to design to construction management, the use of computer-driven technology and tools for the construction of office, industrial and retail space has exploded in the construction industry. Historically, construction disputes have always been document-intensive because they involve multiple parties, facts developing over one or more construction and design seasons, and thousands of documents spread among property managers, landlords, tenants, developers, architects, engineers, general contractors, subcontractors and suppliers.

Construction firms are now turning to tablet devices and related applications to develop and manage construction projects. See Erin Joyce, Make Way for App Builders, Engineering News-Record, Dec. 5, 2011, at 30. Rapid communication among remote industry segments now takes place over PDA devices and web conferences rather than in person. See Luke Abaffy, Millennials Bring New Attitudes, Engineering News-Record, Feb. 28, 2011, at 22. Advanced design modeling systems, such as building information modeling, is now widely used to identify construction challenges before the office, industrial or retail project hits the ground. See The Case for Investing in 3-D Modeling, Illuminations, Fall 2011.

All of these technological advances, which lead to stored electronic media, create a vast amount of electronically stored information (ESI) that may be discoverable during dispute resolution ' whether in court or arbitration. Most parties about to embark on litigation involving office, industrial or retail space are not entirely aware of, nor are they equipped with, the personnel to manage the expanse of ESI that may be related to the underlying dispute. If the parties choose to litigate their dispute in court, it may be necessary to hire an outside consultant to locate, gather, store and produce the ESI in order to comply with the Federal Rules of Civil Procedure (FRCP) or, alternately, state rules of civil procedure. The parties must also engage attorneys to conduct a lengthy and costly privilege review of all ESI to ensure that attorney-client and work product privileges are not waived during production.

Although “claw-back” agreements, which require parties to return privileged information produced through inadvertent disclosure, may alleviate the fear of waiver, it is imperative, nonetheless, that all material be reviewed to avoid providing an opposing party with even a glimpse of protected information. Furthermore, depending on the format of the ESI produced by the opposing party, a party may incur further expenses to convert the ESI into a useable format so that it can be reviewed by attorneys and parties.

This article discusses the current ESI law, the impending ESI crisis in arbitration, and how resolving office, industrial and retail claims through alternative dispute resolution helps to corral the burdens of ESI discovery for developers, owners, property managers and contractors by managing ESI with specific agreements, guidelines and rules.

ESI Standards Under Rules Of Civil Procedure

FRCP and most state rules of civil procedure allow for the discovery of ESI that is “reasonably accessible” to the parties. See FRCP 26(a)(1)(A)(ii); FRCP 26(b)(2)(B). Litigants are therefore required to produce all relevant, non-privileged ESI pursuant to a discovery request. See FRCP 34. Moreover, to avoid destruction of potential evidence, litigants must preserve ESI when they have notice that ESI is relevant to litigation or may be relevant to potential future litigation. See, e.g., Zubulake v. UBS Warburg, LLC , 220 F.R.D. 212, 216 (S.D.N.Y. 2003). Therefore, given the time and effort it may take to locate, preserve and produce all discoverable ESI, parties may ask the court to limit the scope of discoverable ESI through a showing of undue burden or cost.

Notably, failure to produce all discoverable ESI could result in sanctions ranging from attorneys' fees and costs to adverse inference jury instructions or a default judgment. See FRCP 37; U.S. v. Philip Morris USA, Inc. , 327 F. Supp.2d 21 (D.D.C. 2004) (fining defendant $2.5 million for destroying potentially discoverable e-mails two years after the entry of a preservation order and barred from presenting witnesses at trial who had failed to retain and preserve relevant records); Danis v. USN Commc'ns , 53 Fed.R.Serv.3d 828 (N.D. Ill. 2000) (levying personal fine against the defendant's CEO for failure to take reasonable steps to preserve data at the outset of discovery); Metro. Opera Ass'n, Inc. v. Local 100 Hotel Emps. & Rest. Emps. Int'l Union , 212 F.R.D. 178 (S.D.N.Y. 2003), motion for reconsideration denied, 2004 WL 1923760 (S.D.N.Y. Aug. 27, 2004) (entering default judgment against the defendant when it failed to implement a systematic procedure for the retention of documents, knowing that the client had no document retention plan in place and delegated the document production tasks to a lay person who lacked an understanding of how broadly the term “document” was defined by the document request).

Alternative Dispute Resolution Tribunals

Alternative dispute resolution proceedings (ADR), such as arbitration and mediation, have become popular forums in which to resolve office, industrial and retail construction disputes because ADR is considered less expensive, faster, and more efficient than court litigation. In recent years, however, ADR ' specifically arbitration ' has been criticized as becoming no different from court litigation, due greatly in part to extensive and costly discovery. See ADR Systems of America LLC, Commercial Arbitration Rules at 3 (Aug. 30, 2011). Much of the escalated expense associated with discovery is attributable to the growing use, management and discoverability of ESI. This is generally considered to be e-mail, web pages, word processing files, databases, codes and algorithms, metadata, computer programs, or any other kind of data that can be stored on a computer, blackberry or other PDA.

The three main ADR tribunals, ADR Systems of America LLC (ADR Systems), JAMS, and the American Arbitration Association (AAA), have therefore developed electronic discovery guidelines and rules to assist the parties, advocates and neutrals to deal with requests for electronic discovery, while also maintaining the goals and processes associated with arbitration.

ADR Systems Commercial Arbitration Rules

On Aug. 30, 2011, ADR Systems issued revised commercial arbitration rules to “implement many of the ideas advocated by business and academic commentators to reverse” the trend of arbitration “becoming almost indistinguishable from court litigation.” ADR Systems of America LLC, Commercial Arbitration Rules at 3. These revised rules contain defined limits on the disclosure of ESI during arbitrations. Included in the rules are provisions defining the various types of ESI and related data, as well as “modes” by which parties may agree to disclose ESI. See ADR Systems of America LLC, Commercial Arbitration Rules, Rule 8.4.

JAMS Comprehensive Arbitration Rules and Procedure

Recognizing that ESI “has substantially increased the volume of available document discovery” and “has also substantially increased the cost of the discovery process,” JAMS released the “Recommended Arbitration Discovery Protocol for Domestic, Commercial Cases” on Jan. 6, 2010. In that document, JAMS recommended that the arbitrator issue “an early order” containing language expressly limiting the scope of electronic discovery permitted in the arbitration. Additionally, JAMS provides expedited arbitration procedures that may be incorporated into the parties' agreement to arbitrate or requested in the claimant's post-dispute demand for arbitration. The expedited procedures, found at Rule 16.2, provide specific limits on the discovery of ESI.

AAA Arbitration Rules

Neither the AAA Commercial Arbitration Rules nor the AAA Construction Industry Arbitration Rules contain specific procedures regarding discovery of ESI. However, the AAA Rules provide the parties and the arbitrator with the ability to manage discovery to best suit the needs of the specific matter. Furthermore, the AAA's International Centre for Dispute Resolution (IDCR) developed “ICDR Guidelines for Arbitrators Concerning Exchanges of Information” that can be adopted by parties to other AAA arbitrations by agreement.

Conclusion: Limiting Scope of Discoverable ESI Through ADR Benefits All Parties

It is advantageous to establish ADR agreements before there is a controversy. Limiting the scope of electronic discovery through arbitration agreements, and the rules and guidelines provided by the various ADR tribunals, fosters the following:

• Lower cost dispute resolution;
• Decreased burdens in providing ESI during discovery;
• Comprehensive and focused discovery results;
• Efficient use of the parties' time;
• Fewer barriers to document review;
• ESI produced in a useable format;
• Quicker resolution of disputes;
• Avoiding costs that surpass the goals and value of the dispute; and
• Simplifying the steps to help keep ESI confidential.

Pursuing a claim through ADR with well-defined limits on the scope of ESI enables the parties, attorneys and neutrals to better manage the exchange of information during arbitration, and reach a resolution in a more efficient and less costly manner.

Gregory R. Meeder is a partner in Holland & Knight, with the National Construction Industry Practice Group and is the Regional Construction Practice Group Leader for the Midwest. He handles civil trial matters in state and federal trial courts on a local and national basis, proceedings before governmental and administrative agencies and arbitration proceedings. Livya Heithaus was an attorney with the firm when this article was written. She is currently with Schiff Hardin LLP, based in Chicago.