Growing Interest in the FRCP

The new amendments to the Federal Rules of Civil Procedure (FRCP) were passed about 54 weeks ago and they are starting to have a significant impact on the way that organizations view their electronic assets. However, that impact is still not reaching to all organizations that are at risk of heavy penalties for a failure to archive properly in support of e-discovery. Consider, for example, that Morgan Stanley had to pay a $15 million fine in 2006 for not saving email properly and paid $3 million earlier this year for not providing email and taking appropriate supervisory measure to preserve email content. Wachovia paid a fine of $2.25 million for not fully complying with SEC 17(a). In March 2006, paid a fine of $2.5 million SEC fine for not properly archiving email. In March 2004, Bank of America was fined $10 million by the SEC for its failure to keep email records regarding its recent merger and for taking too long to comply with regulatory requests.

While most of the judgments so far have focused on violations of regulations in the financial services space, FRCP will have a much bigger impact for one simple reason: it applies to virtually all companies that might be involved in litigation in the Federal courts. When individual states impose their own version of FRCP, the stakes will get dramatically higher.

Bottom line: establish good data retention practices and keep your business records that are contained in email and in your other electronic data stores. Failure to do so will hurt.