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Record retention guidelines cause groans

Amendments to rules governing electronic discovery are met with criticism by lawyers and compliance officers at a record retention show in NYC.

New York City -- Upcoming changes in the law meant to ease the process for discovering electronic records were met with groans and sighs by records managers, lawyers and compliance officers at a record retention conference in New York this week.

Roughly 50 people attended the event, which was held at the New York City Bar Association and attracted general counsels and compliance officers from some of the largest financial institutions in the world. Among the list of attendees were Citigroup Inc., Credit Suisse., Federal Reserve Bank of New York., Goldman Sachs., JPMorgan Chase & Co., Merrill Lynch & Co. and Morgan Stanley, among others.

These changes to the law "are pie-in-the-sky, utopian ideas that help nobody," said a senior vice president and general counsel for one of the financial firms attending the show. He requested anonymity because of the sensitivity of the topic. "It's a bunch of judges who couldn't care less what it takes to comply with these draconian measures as long as we comply."

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The new federal rules of discovery will take effect this December and are a reaction by the Supreme Court to a series of judgments and fines over the past two years that focus on companies' obligations to preserve and produce electronic evidence.

"The rules are getting more specific, they give better guidance on how to treat electronic information," said Avanish Sahai, vice president of marketing for PSS Systems, a manufacturer of eDiscovery software and organizer of the event. "There's still a lot of interpretation as always with the law but at least there's more specificity."

The most notable amendment is to Rule 26 (b) of the Federal Rules of Civil Procedure, which now limits the production of electronically stored information to that found in "reasonably accessible" sources. Rule 26 (b)(2)(B) states that:

A party need not provide discovery of electronically stored information from sources that the party identities as not reasonably accessible because of undue burden or cost.

Experts say the advisory committee on the Supreme Court adopted this rule to try to curb excessive and unnecessary expense associated with electronic discovery. Hands shot up in the audience asking whether backup tapes could be characterized as "not reasonably accessible." Top of most peoples' minds was the Morgan Stanley case in which the company was unable to recover emails on old backup tapes and was eventually fined $15 million by the Securities and Exchange Commission for failure to comply with regulations.

"Your records retention policy should state that your backup tapes are only used for disaster recovery and not readily accessible," said Tom Lahiff, assistant general council at Citigroup, presenting at the event.

While a record retention policy is tough to implement and manage on an ongoing basis, if it defines your procedures clearly and in detail, it will help you rather than hinder you, according to Woods Abbott, senior manager of legal operations at Raytheon Company.

"Having your housekeeping in place does a lot for your credibility with these people," he said.

However, others say that the updates to the rules aren't much of a safe harbor. For example, Rule 26 (b) also states:

The court may nonetheless order discovery from such sources if the requesting party shows good cause.

"Language like 'reasonably accessible' and 'good cause' are just fig leaves, for 'you have to find everything,' " said another lawyer at the event who requested anonymity.

Language was a big theme of the day, especially when it comes to writing retention policy and how that policy will be viewed after the fact in litigation. Referring to a number of recent cases, Citigroup's Lahiff said, "When you look at these cases, it's hard to believe some companies have 'shred days.'. If that's the policy approach you decide to take, at least use 'records management awareness day,' it achieves the same goal but is a little easier to defend." He joked, "I even prefer 'retire,' which feels more like relaxing on the beach, drinking umbrella drinks and nobody gets hurt."

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