Clearly, concessions must be made to the necessity of achieving immediate, pragmatic results. The preferred tools of the bankruptcy profession are deal making and consensual resolution. But the process of “adjusting debt” is far too serious and too sensitive to societal interests, to be handled in an unprincipled manner. Among the icons of Bankruptcy Code policy is fairness in process: uniform treatment of claims within preordained, prioritized classes;¹ scrutiny of insider transactions through the lens of fairness to creditors;² and meaningful disclosure of the material facts in time for the constituencies of the bankrupt estate to seek protection of their respective interests.³ The Bankruptcy Code even looks back at certain periods of time before the petition date, to avoid inequitable or preferential transfers on the eve of bankruptcy.⁴ Proceeding in bankruptcy court is truly a contest, but one generally intended for a level playing field, as Title 18 attests.⁵

Those officially entrusted with the property of the bankruptcy estate, even a debtor-in-possession, are fiduciaries under federal law to the community of interests of the bankruptcy estate, and are thus proscribed from acting “outside the normal course of business” without prior “notice and hearing.”⁶ Further, any party in interest in a Chapter 11 has an expressed right to request a hearing from the court, on any matter, at any time [11 U.S.C. §1109(b)]. Under the Bankruptcy Code generally, a party in interest may seek to intervene in a proceeding for cause shown. [B.R. 2018(A)].

With active constituents, armed with enough information to render proceedings reasonably transparent, the process generally strikes an acceptable balance between principle and expediency at least with respect to issues the political process has allowed to be heard in bankruptcy. When the process works as it should, society receives a valuable service in the pragmatic resolution of failed economic commitments, and recycling of assets and economic opportunities. Ultimately, the authority of the bankruptcy system itself rests upon societal perception that it is home to a process at least reasonably fair, and mostly expedient.

The considerable powers of bankruptcy, created by Congress and guarded by the courts, are nevertheless pregnant with possibilities for manipulation and abuse that some, unfortunately, find irresistible. Notwithstanding efforts to police and reform the practice by legislation (e.g., 11 U.S.C. §307), it ultimately falls to the bankruptcy bench and bar to bear the brunt of reasonable quality control.⁷

Disclosure of adequate information on a timely basis is essential for the process of consensual negotiation and resolution to roll out.⁸ While “pre-packaged plans,” “liquidating 11s,” “first-day orders,” “critical vendor payments,” extra-judicial deal making and the like, are deemed pragmatic enablers of efficiency, they need always to be tempered with a degree of transparency appropriate to meaningful disclosure so that the loyalty of constituents is maintained, and the societal interest is served. In the first instance, it falls to informed bankruptcy counsel to discern the facts, and if necessary, deliver them publicly to the court with vigor and skill, to assure a “level playing field” for the constituent(s) served.

Why Should I Care About E-Discovery?
Traditional investigative techniques, allies, mandatory information filings, first meeting of creditors, etc., all have their place in the arsenal of bankruptcy counsel. But they often prove woefully inadequate by themselves, especially in a complex case of any magnitude. A skillful adversary with time to plan against jurisdiction and to “make deals,” can render timely discernment and proof by other constituents, of motives and agendas, extremely challenging. This can quickly “decontent” the bankruptcy, unless key issues are quickly spotted and raised in a timely manner.

Today, over 95% of information arising from communication and record keeping is in electronic form (electronically stored information, or ESI). Faced with the sheer volume, proliferation and malleable nature of ESI, the courts officially recognized the rapidly expanding importance of ESI by adopting changes to the Federal Rules of Civil Procedure, including the Bankruptcy Rules, effective December 2006.⁹ A flood of case decisions have since followed, addressing discovery sanctions and building upon the evolving tort of “spoliation of evidence.”¹⁰

For its part, the U.S. Supreme Court has gone even further, holding repeatedly that the case trustee, or surrogate, holds the debtor’s attorney/client privilege, and has serious duties to investigate debtor’s affairs.¹¹

These rule changes, together with the advancing case law, mandate affirmative cooperation by counsel, and by their constituencies, in making information disclosures, including ESI, as reflected in B.R. 7026(a). Sometimes the “chamber rules” of individual judges go even further to require counsel to be prepared to address in detail at the initial Rule 7026(f) conference disclosure-related issues such as what ESI is readily available (e.g., on the operating system), where cost-shifting may be appropriate (e.g., retrieval of ESI from backup tapes); what information is relevant (e.g., search term lists); and what protocols may reasonably be necessary for dealing with foreseeable issues such as: formatting, privilege, confidentiality, relevancy, access and authentication. A case may be broken wide open by immediate access to a “smoking gun” resident on a home PC, a walking laptop, a thumb drive or other information storage device. But, given the nature of ESI, you must act quickly.

Some venues provide “default” e-discovery orders. In the absence of formal stipulation by counsel, the default order may not only require more detailed disclosure of ESI sources, custodians and protocols, but also formal designation of an “e-discovery coordinator” for each party that will be directly in the line of fire should shortcomings in information retrieval and disclosure surface later.¹² A working knowledge of the e-discovery process itself commends these practices to fix accountability, even more so in the bankruptcy context where they resonate with the bedrock bankruptcy policy of meaningful disclosure, found throughout the Code (e.g., §308, §330, §340, §342, §521, §704(a)(7), §727(a), §1106, §1107, §1108, §1109(b), §1125, §1221, §1328(e), B.R. §1007, §1008, §1017(c), §2004, §2013, §2015, §2017, §2018, §3002, §3016, §7016, §7026 and §7037).

Even in those courtrooms where Rule 7026(a) is not officially invoked, the individual judge usually has standing expectations of how counsel should handle disclosures with each other. Moreover, high-profile “spoliation” and sanction cases under the federal rules have not only assigned responsibility to counsel to explain and shepherd the client’s preservation and production obligations, but in some jurisdictions have held counsel personally liable for damages based upon what later appeared to the court to be material breaches of those duties by counsel or by the client.¹³

In the bankruptcy context in particular, it is often difficult if not impossible, to identify early on all information that will eventually be deemed relevant, especially in a case of any complexity. It can take many months, even several years, for some motions, adversary proceedings, objections to claims and the like, to roll out. Very often, facts are not recognized as “relevant” until raised into issue by another party. It is not unheard of for a debtor (trustee or committee) to inherit an information system, server, etc., which is obsolete or unserviceable, and which can fail and destroy information at any time.

Merely accessing a computer file can alter related “meta data,” if appropriate protocols are not observed. This can affect information such as “access dates,” which could be highly material in your case, and affect its weight or admissibility as evidence. A forensic copy of the drive should be made first, to capture the drive contents as they were. Examination and analysis can then be done using a copy of the drive.

In this environment, debtor’s counsel, trustee, trustee’s counsel, committee’s counsel and counsel for other active constituents, should have experienced advice available from inception of involvement, laying the foundation for responsible information collection and management, and for later rolling out of e-discovery and e-discovery responses. Flying blind through periods when information retention and management obligations should be addressed is running an unnecessary risk of exposure to liability on discovery and disclosure-related claims, in addition to forfeiture of powerful tactical advantages.

There is a safe harbor for routine information management, including destruction and attrition of information pursuant to an established, principled information retention and destruction policy.¹⁴ Once “litigation is likely,” however, relevant information must be protected by an affirmative and continuing “litigation hold,” which should be documented.¹⁵ While “perfection” is not required in information management, demonstrably reasonable and good faith efforts most certainly are. Both counsel and client can be held liable in many jurisdictions for what appears to the court in hindsight, to have been “unreasonable” failure to preserve relevant information.¹⁶

This liability falls on top of exposure for breach of fiduciary duties by trustees, debtors-in-possession and so forth, which varies by circuit from a standard of simple negligence through recklessness or wanton misconduct. It is more cost-effective to build your information house on rock, and avoid these costly and embarrassing problems, right from the start.

For bankruptcy counsel, being prepared with meaningful information presents both an unparalleled opportunity to heighten the transparency and integrity of the bankruptcy process, and to leverage the position of your client during those “give and take” negotiations. Momentum builds momentum. (Who wants to be the last defendant standing, when the rest have settled and have agreed to testify?) Imagine the traction generated by forensic recovery of the six deleted drafts of the “business plan,” which expose the final, official version as a progressive work of fiction. The prospect of recovering probative information from a “damaged” drive, via “clean room restoration,” can unnerve an adversary, and shake loose information from other parties.

Sometimes silence is pregnant with meaning. What inference can the court draw from the untimely “scrubbing” of those drives, which demonstrably contained probative information on a case-dispositive issue?¹⁷ What inference should the court draw from the fact that the attachment is “missing” to that e-mail with the highly incriminating subject line? Our courts are empowered to enter appropriate relief against a party that has spoliated relevant evidence, from inference instructions or presumptions, costs and attorneys fees, through the award of damages.¹⁸

Preparation is a shield also, minimizing exposure in the maze of potential spoliation traps and pitfalls that arise absent early planning and documenting of information management.

Tools Available to the Bankruptcy Practitioner
While the volume and varied sources of information facing practitioners today can be daunting to some, technology has come to our aid, offering real-time, real-world, practical solutions. Fortunately, the cost of technology, and of related expertise, has been relentlessly “moving down market.”

Every law firm and every case, deserves special consideration according to the circumstances. For the big firm on the big cases, most now have in-house lawyers expert in e-discovery and information management. For regional and smaller firms with the occasional “big” bankruptcy/litigation case, and many cases of more modest size, there are technical experts, and bankruptcy litigation counsel experienced in the unique challenges of bankruptcy litigation and e-discovery that have no particular interest in your book of business. They are available to serve as a consultant or even special counsel, and ready to then go home. They can assist on matters ranging from information management through computer search and forensics, to electronic discovery, pre-trial matters and, should it still be necessary, presentation of electronic evidence at the trial itself. This may be a lot more cost effective than trying to gear up or carry the ability in house.

There are many types and levels of IT assistance available for various situations calling for particular applications. I offer my personal experience as a guide.

Costs are probably not what you think. A “straightforward” forensic copying of a computer drive can usually be obtained for around $1,000. Searching for deleted or partially overwritten “fragments” in the “voids” and “partition spaces” of the drive can progressively add significant cost, because more manual forensic work is involved.

Does your case turn upon an e-mail communication? If the e-mail is on a Web-based server (such as AOL or Yahoo) you may have limited options: at least one federal district court has held that the Electronic Communications Privacy Act proscribes the service of a subpoena duces tecum upon an Internet provider.¹⁹ However, quick action to forensically copy and examine the PC drive may still yield a “temporary” image of the communication still resident on the PC drive itself.

There are presently available cost-effective technologies capable of rapidly mining vast information sources, and assisting in the identification, assessment and organization of relevant information. In collaboration with experienced bankruptcy litigation counsel, information management experts can blend various search methodologies to create a powerful “search matrix” tuned to the particulars of the case, and perfectly capable of finding the “smoking guns” from among hundreds of thousands or even millions of documents, sometimes over a weekend. These information efficiencies permit, for example, a case trustee to examine more matters and issues, and in real time, than previously possible, to better serve the estate.

Such search matrices are usually Web-based, and offer multiple “chairs” for remote website access. Professionals in one or more specialties and firms, can mine the information base from their office desktops, and collaborate in document baskets or comment sections on the kiosk. Website security is fanatical, and use of the site is closely monitored, with layered access based upon assigned need to know.

Depending on the particular circumstance, you may find useful an upfront dossier on particular key players; or a timeline summary of documents, with relevant contents, on key issues, which can provide fairly deep insight into where your investigation needs to focus.

There are even “inductive” search methodologies that can identify linguistic/conceptual “flags” of malfeasance independent of facts known to be in issue, and pull up the words in context in the document(s) for instant review.

These tools can be invaluable to a trustee, or committee with standing that, having an unrestricted right to examine a vast reservoir of information of the debtor, needs to get their arms around the issues as quickly as possible. Given the host of proceedings, constant accretion of new information and surfacing of new issues typical throughout the life of a bankruptcy case, the ability to return again and again to the matrix with new or tweaked searches is extremely cost-effective and powerful.

Related “meta data” or systems information, not only bears witness to the history of related electronic information, establishes verifiable timelines, and provides proof of any efforts to alter or destroy information, it also enhances the powers of the search matrix, making processing, review and analysis of information even easier, while reducing processing costs. So, you need to be gathering information in the most useful format, right from the start.

For you hunters, I liken the e-discovery process to hunting whitetails. You need to strike out into the woods to do some scouting until you cross the “hot” trails. When you find trails that meet, with plenty of signs, you are in the game. Ultimately, it is the understanding of how the game use the woods, which sets up your shot. These tools are able to scout these trails many times faster, and with more accuracy, than even large groups of lawyers can. You just have to be able to tell the matrix what sign to look for, and be willing to interact with the matrix as you climb up the case learning curve.

The processed information can be electronically “hash marked” for chain-of-custody and authentication purposes,²⁰ bates marked for easy indexing and reference, and combined with whatever case/document management tools or methods you prefer, (such as Concordance or Summation or an “old-fashioned” trial notebook) to present the information with maximum effect in discovery, settlement negotiations or trial.

These powerful tools are particularly at home in the bankruptcy context where getting to the operative facts, quickly and cost-effectively, has always been at the heart of the game.

Chuck Bobinis is the senior litigator and a partner at the Bernstein Law Firm, where he concentrates in complex commercial and bankruptcy litigation, including e-discovery. He also participates in the firm’s Bankruptcy and Business Law practices, as needed. Bobinis has been recognized as a “Pennsylvania Super Lawyer” in 2007 and 2008.

Engaged in e-discovery in the context of complex litigation since 2004, Bobinis has written numerous articles and held speaking engagements alerting business and the legal profession to the advantages and pitfalls of information technology, which are now manifesting themselves in earnest. He also consults on technology applications in the litigation and contract areas. Bobinis was honored by the Commercial Law League of America, Creditors’ Rights Section, as winner of the 2007 Free Press Annual Best Feature Article Award for his December 2006 e-discovery article accurately predicting the expanding impact of this area of law. Most recently, Bobinis has served as the chair of the E-Discovery Committee at the 2007 Bankruptcy Symposium, sponsored by the Allegheny County Bar Association. He is certified in Creditors’ Rights by the American Board of Certification and has over three decades of experience in trial, appellate and alternative dispute resolutions. He earned a B.A. from Lafayette College and earned a J.D. from the University of Pittsburgh School of Law. Bobinis is a member of the Allegheny County Bar Association as well as a member of the ELFA, Pittsburgh Leasing Association, Commercial Law League of America and Lease Enforcement Attorney Network.