ESI Guidelines for the Bankruptcy Case: The ABA’s Electronic Discovery in Bankruptcy Working Group Issues Interim Report

Although the Federal Rules of Civil Procedure were updated in 2006 specifically to deal with electronically stored information (“ESI”), Bankruptcy Courts and Bankruptcy practitioners have had little bankruptcy-specific guidelines for managing ESI and electronic discovery issues. As a result, the ABA commissioned the Electronic Discovery (ESI) in Bankruptcy Working Group “to study and prepare guidelines or a best practices report on the scope and timing of a party’s obligation to preserve [ESI] in bankruptcy cases.” On March 15, 2012, the Working Group published their interim report on ESI in bankruptcy cases in an effort to invite and stimulate comments from a wider audience regarding how ESI issues should be handled in (i) large Chapter 11 cases; (ii) middle market and smaller Chapter 11 cases; and (iii) Chapter 7 and Chapter 13 cases.

The Working Group’s primary focus has been on a Chapter 11 debtor-in-possession’s obligation to preserve ESI in connection with adversary proceedings, contested matters and the bankruptcy case itself, as well as the obligation of non-debtor parties to preserve ESI. Although the report differentiates between cases based on the size of the bankrupt entity and whether it has commenced a reorganization or liquidation proceeding, the principles espoused throughout the report are similar, with the differences primarily being focused on the economic constraints of each type of case.

The proposed standards, not surprisingly, contemplate that the duty to preserve ESI applies in the bankruptcy context. Tracking the traditional standards, the duty to preserve ESI arises when the lawsuit is filed or potential litigation matters become reasonably anticipated. Conversely, the actual or anticipated filing of a bankruptcy case would not, by itself, require a debtor to preserve every piece of information in its possession. Instead, it would, in general, be appropriate for the debtors to continue following routine document retention programs, consistent with the reasonable anticipation of contested matters and adversary proceedings.

One unique principle proposed by the Working Group recognizes that proportionality, an important issue in non-bankruptcy matters, is key to bankruptcy cases. In general, debtors are operating with financial constraints and usually have limited assets, and creditors can generally expect less than a full recovery on their claims. In recognition of this, the Working Group suggests that debtors and trustees should not be forced to spend a disproportionate amount of the debtors’ limited resources on the preservation and production of ESI.

Finally, the principles encourage counsel to meet and confer with respect to ESI issues even where Bankruptcy Rule 7026 does not apply, such as contested matters. Given the nature of a bankruptcy case, where, ideally, disputes are resolved quickly and efficiently to avoid dissipating estate assets, such a conference may help to minimize disputes and promote this efficiency.

In addition, the Working Group provided ESI guidelines and suggested best practices for debtor’s counsel. While not applicable or practical in every bankruptcy case, these guidelines suggest that ESI should be dealt with as a whole at the beginning of a case, as opposed to using a piecemeal approach during the case. The Working Group suggests this approach will prove to be more efficient and less burdensome to the debtor.

Gibbons P.C. continues to monitor the Working Group and will issue an update upon the release of additional interim reports or the final report.

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