Duffy-Lewis, Maureen

Garrie, Daniel B.

English

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The John Marshall Journal of Information Technology & Privacy Law Volume 25 Issue 2 Journal of Computer & Information Law - Spring 2008 Article 3 Spring 2008 Dancing in the Rain: Who is Your Partner in the Corporate Boardroom?, 25 J. Marshall J. Computer & Info. L. 267 (2008) Maureen Duffy-Lewis Daniel B. Garrie Follow this and additional works at: https://repository.law.uic.edu/jitpl  Part of the Computer Law Commons, Internet Law Commons, Privacy Law Commons, and the Science and Technology Law Commons Recommended Citation Hon. Maureen Duffy-Lewis & Daniel B. Garrie, Dancing in the Rain: Who is Your Partner in the Corporate Boardroom?, 25 J. Marshall J. Computer & Info. L. 267 (2008) https://repository.law.uic.edu/jitpl/vol25/iss2/3 This Opinion is brought to you for free and open access by UIC Law Open Access Repository. It has been accepted for inclusion in The John Marshall Journal of Information Technology & Privacy Law by an authorized administrator of UIC Law Open Access Repository. For more information, please contact repository@jmls.edu. OPINIONDANCING IN THE RAIN: WHO ISYOUR PARTNER IN THECORPORATE BOARDROOM?HONORABLE MAUREEN DUFFY-LEWISt ANDDANIEL B. GARRIEttThe first thing I ask a new client is:"Have you been saving up for a rainy day?""Guess what? It's raining."1In the crime thriller, Primal Fear, Richard Gere's character, MartinVail, the masterful and overly confident criminal defense lawyer, utterst Maureen Duffy-Lewis is a judge of the Los Angeles Superior Court. Her judicialcareer began in 1987, when she was appointed to the Los Angeles Municipal Court by Gov-ernor George Deukmejian. In 1996, she was elected, unopposed to the Superior Court ofLos Angeles. Her assignments on the court have included assignment to the Clara Short-ridge Foltz Criminal Justice Building which is the Central Criminal Court of Los Angelesconducting major felony trials and The Stanley Mosk Central Civil Courthouse, where shecurrently sits in department thirty-eight, hearing matters in Unlimited Jurisdiction Gen-eral Civil. She is an author, teacher and popular lecturer at the Judicial and College Level.Judge Duffy-Lewis is from Los Angeles, graduated with a Bachelor of Arts from The Uni-versity of Southern California, and received her Juris Doctorate from the Loyola LawSchool in Los Angeles.tt Daniel Garrie regularly consults with attorneys and technologists on electronic dis-covery and discovery management issues related to litigation, commercial disputes, busi-ness claims, and enterprise information archiving implementation. Mr. Garrie wasadmitted to practice law in New York and New Jersey and is editor-in-chief of the Journalof Legal Technology Risk Management. Mr. Garrie has a Juris Docturate from RutgersSchool of Law, M.A. and B.A. in Computer Science from Brandeis University. Mr. Garriespecializes in the synchronization of policies with information technologies and related bestpractices to ensure legal compliance for enterprises worldwide. Mr. Garrie has publishedmore than 30 articles and books on E-discovery, software, intellectual property, compli-ance, technology, legal, telecommunications, US and EU privacy policies, and a range ofother e-law issues. Mr. Garrie resides in New York City and he can be reached atDaniel.garrie@gmail.com. Contributions for this essay include Michael Robak and RonaldJ. Lewis.1. Primal Fear (Paramount Pictures 1996).268 JOURNAL OF COMPUTER & INFORMATION LAWthose words to a hapless in-custody client charged with the murder of abeloved archbishop, and impresses the idea that when trouble comes, itwill not be cheap. In today's corporate boardrooms, to paraphrase Mar-tin Vail, it's raining! The executives and board members who long reliedon the civil courts to resolve questionable behavior in the boardroom arenow seen as mere criminals. Even well meaning board members, actingin a way they believe is consistent with their mandate and obligationsare looking over their shoulder for potential criminal liability. Theclouds continue to gather. This essay examines the importance of thewhite collar criminal lawyer to the new clouds gathering over the corpo-rate boardroom - the clouds of e-discovery.For as long as most can remember, what happened in the boardroomstayed in the boardroom, unless the U.S. Securities and Exchange Com-mission ( "SEC") regulators wanted to chat.2 All things done in the nameof corporate activities seem to dance to the same music, and joint inter-missions were called when the SEC or their brethren thought a companywas going too low under the limbo bar. Even when legal action wastaken it was almost always resolved with meas culpas, more oversight,and a lot of money.3 Even where criminal charges were threatened,though rarely filed, money, restitution, and fines seemed to assuage allinvolved.42. Even then, the SEC's enforcement mechanism was seen as lax. See e.g., Toni AnnePuz, Private Actions for Violations of Securities Exchange Rules: Liability for Nonenforce-ment and Noncompliance, 88 COLUM. L. REV. 610 (1988). The legislative history of the 1975amendments is replete with congressional concern over SEC passivity in the realm of ex-change rulemaking and enforcement, suggesting that the express remedies provided by the1975 amendments were intended to supplement, rather than to supplant, the availabilityof private actions. In an expansive study prior to the 1975 amendments, a senate commit-tee noted that "the major regulatory problems in the securities industry have not been theresult of the SEC's lack of authority but rather a "tame watchdog" that exercises its directsupervisory powers over exchanges only sparingly, preferring instead to cooperate with anddefer to exchanges in the area of rulemaking. Congress observed that "[s]ixteen differentyears of amendments make clear Congress' readiness to assure the [SEC] the power toprotect investors, but no amount of legislative tinkering can build within the SEC the com-mitment and vitality to make full use of the tools Congress provides." And it was not untilthe early 1980's amendments to the regulations that more enforcement authority was pro-vided. See e.g., James D. Cox and Randall S. Thomas, SEC Enforcement Heuristics: AnEmpirical Inquiry, 53 DuKE L.J. 737 (2004) (discussing the amendments of the securitieslaws in 1984, 1990, and 2002, whereby Congress expanded significantly the SEC's en-forcement arsenal).3. Interview with Roderick Hills, Chairman of the Securities and Exchange Commis-sion from 1975 to 1977, December 20, 2002, available at http://www.sechistorical.org/collec-tion/oralHistories/interviews/hills/hills1222002Transcript.pdf ("You may recall, as is stillthe case, that the authority of the SEC's Enforcement Division to threaten a case was prob-ably more important than bringing a case.")4. David M. Weiss, Reexamining the SEC's use of Obey-The-Law Injunctions, 7 U.C.DAvis Bus. L.J. 6 (2006)[Vol. XXVDANCING IN THE RAINSince the go-go days of the 1980's, as portrayed in Oliver Stone'sWall Street, many criminal lawyers have heard the din of the thunderclouds. The corporate scandals of Michael Milken, Ivan Boesky, andCharles Keating were transcended by the Enron, Worldcom, Adelphias,and Brocade scandals. 5 The hue and cry from individuals financially ru-ined after years of hard work appeared on the front page of every news-paper and television nightly news program. The "perp walk" seemed tobecome a staple of the nightly news. 6 To assist America's corporations'quest to comply, civil firms have opened up entire new areas of practice,focusing in corporate governance and compliance and, more importantly,the white collar criminal practice specialty tied to the more traditionalbusiness law practice. Rarely in the expansion of the business lawyer'soffice would one find a door that said "Criminal Lawyer." Criminal lawin the boardroom had come into its own and prosecutors now had a newvenue to explore, laws to prosecute, and people to protect.In days gone by, the American public was interested in Wall Street'sgoings and comings but they were not overwhelmingly investing theirretirement nest eggs on the corner of Wall and Broad. Enter the Ameri-can public, who now invest in corporate America to the tune of trillions.It is estimated that nearly 50% of the American public invests in Corpo-rate America through a number of financial vehicles ranging fromstocks, bonds, and mutual funds, either individually or through their re-"During 2005, the Securities and Exchange Commission ("SEC" or the "Commis-sion") filed 947 enforcement actions and obtained a record amount of more than $3billion in penalties and disgorgement. As in any given year, the vast majority ofthese cases were not litigated but filed as settlements. In addition to money penal-ties and disgorgement, most SEC settlements levy "obey-the-law" injunctions - in-junctions (or consent decrees) against future violations of securities laws in whicha perpetrator agrees to "sin no more" or risk contempt of court-as a remedy. Theinjunction has been a "cornerstone" of the SEC's enforcement program since theCommission's founding in 1934."5. The Past Enforcement Directors Roundtable: (television broadcast June 14, 2006),available at http://www.sechistorical.orgcollection/papers/2000/2006_0614_SECEnforce-ment.pdf.6. Caldarola v. County of Westchester, 343 F.3d 570, 572 (2d Cir. 2003)"The "perp walk," is, when an accused wrongdoer is led away in handcuffs by thepolice to the courthouse, police station, or jail, [which] has been featured in news-papers and newscasts for decades. The normally camera-shy arrestees often pullcoats over their heads, place their hands in front of their faces, or otherwise at-tempt to obscure their identities. A recent surge in "executive perp walks" hasfeatured accused white collar criminals in designer suits and handcuffs. Whetherthe accused wrongdoer is wearing a sweatshirt over his head or an Armani suit onhis back, we suspect that perp walks are broadcast by networks and reprinted innewspapers at least in part for their entertainment value. Yet, perp walks alsoserve the more serious purpose of educating the public about law enforcement ef-forts. The image of the accused being led away to contend with the justice systempowerfully communicates government efforts to thwart the criminal element, andit may deter others from attempting similar crimes."2008]270 JOURNAL OF COMPUTER & INFORMATION LAWtirement 401Ks. 7Of course, the boardroom is not run by a bunch of nefarious criminalminds, but corporations that end up with criminal issues can end up los-ing, or worse, going out of business. A recent example is the criminalactivity of Hewlett Packard's ("HP") former chairwoman, Patricia Dunn,who avoided the original felony charges that stemmed from a scheme toillegally acquire other HP board member phone records using a methodcalled pretexting.8 When CEO's and board members make decisions thatdeeply affect a large number of Americans' financial well-being, no stonewill be left unturned if questions of impropriety are raised.The untrained ear of a Wall Street business or corporate types, in-cluding some of their civil lawyers, may have missed the early sounds ofthe new storms brewing. And this new thunder clapping overhead is buta portent of the storms to come. It is evident, given the dramatic corpo-rate misdealing, class action litigation, and heightened awareness thatSarbanes-Oxley and other federal regulations seek to impose, the secrecythat enveloped the boardroom bunker is gone and corporate malfeasancecan no longer be swept under the rug. Everywhere in corporate America,boards and their legal advisors are evaluating procedures, disclosures,and overall transparency to comply with new legislation and laws.9Transparency is king and the boardroom bunker is no longer secure. Ac-tivity by corporate boards and their Presidents and CEO's - along withall individuals within upper management who are responsible for report-ing to the board - is open for scrutiny. Especially, those who owe a fiduci-ary obligation to shareholders will find themselves in a potentially newcategory not covered by liability insurance. The new category? It iscalled Defendant, and some will become targets for criminal investiga-tions. With this potential lurking, it behooves the corporate boardroomto add another watchful set of eyes and ears to listen for potential conse-quences of boardroom members' activities while exercising their duties.It is in the board's best interest to prepare. Discovery, for example, isessential in every lawsuit. But a new avenue is opening up with the ad-vent of electronic discovery ("e-discovery") and it will need to be masteredin order to properly prepare for future litigation.E-Discovery is becoming the norm in lawsuit discovery. E-mails,7. Investment Company Institute, Equity Ownership in America (2005), available athttp://www.ici.org/pdf/rpt-05-equity-owners.pdf.8. See Market Watch, All Charges Against Ex-HP Chair Dropped, http://www.marketwatch.com/news/story/charges-against-ex-h-p-chairwoman-patricia/story.aspx?guid=%7B80A6AC3F-5B09-4440-920F-4CD70DDE41D8%7D (last visited Mar. 24, 2008); see alsoRemsburg v. Docusearch, Inc., 816 A.2d 1001 (N.H. 2003).9. See Proxy Voting Guidelines, www.ethosfund.ch.[Vol. XXVDANCING IN THE RAINdocuments, instant messages, 10 Blackberry messages, and other digitalartifacts1 1 from the boardroom can be discovered today via e-discoveryunder the amended Federal Rules of Civil Procedure. The proposed rulechanges relating to electronic discovery affect Rules 16, 26, 33, 34, 37, 45,and Form 35; went into effect on December 1, 2006.12 The new rules areaimed at streamlining the discovery process and resolving ambiguity anduncertainty by requiring parties to address e-discovery in the earlieststages of litigation. From a very broad view, the rules are seen as,among other things, creating new disclosure requirements and stan-dards, creating new meeting and conference requirements, changing orredefining the scope of discovery requests, and allowing some flexibilityin the form of production.13As e-discovery enters center stage and the latest cases on metadata,spoliation, or cost-shifting receive scrutiny, both corporate and criminallawyers are swarmed by vendors wanting bigger, better, and faster docu-ment review tools. 14 Yet, even with this awareness, a growing number ofcorporate lawyers and in-house counsel neglect to perform a thoroughreview of their computer systems creating a significant risk for them-selves and their clients. Specifically, when these non-technical corporateattorneys construct policies and practices based only on assumptionsabout their Information Technology ("IT") system, the policies and prac-tices can explode and create complex discovery problems in future litiga-tion - unnecessarily creating civil and criminal risks for their companies.Corporate counsel cannot rely on reports of how the system was set up torun or how IT staff thinks it runs; counsel must learn how the company'semployees actually use the system 15 because reasonableness governsdiscovery obligations.10. See, e.g., Careful: Employee E-Mails, IMs Must be Tracked, http://listserv.edu-cause.edu/cgi-binlwa.exe?A2=indO6&L=smallcol&D=1&P=38497 (last visited Dec. 1, 2006).11. Marilee S. Chan, Paper Piles to Computer Files: A federal Approach to ElectronicRecords Retention and Management, 44 SANTA CLARA L. REV. 805, 809 (2004).12. U.S. Courts, Rules, available at http://www.uscourts.gov/rules/EDiscovery-w_Notes.pdf.13. See Hiding the Inaccessible Truth: Amending the Federal Rules to AccommodateElectronic Discovery, 25 REV. LITIG. 115 (2006).14. Law.com, In House Attorneys Become IT Gatekeepers, Oct. 2005, available athttp://www.law.comljsp/ihc/PubArticleIHC.jsp?id=1128342926735 (describing the corpo-rate counsel response to the anticipated new e-discovery issues). The GC, in 2005, relatedthat for many corporate counsel they cannot find enough ways to prevent disaster. Id.Presciently, Marathon Oil's General Counsel suggested "... it could be five years before thee-discovery frenzy calms down and the courts offer clear directions on what companiesmust produce. Id. Until then [Marathon GC] Kerrigan adds, e-discovery 'is like planningfor Armageddon. No one knows how much is enough. " Id. (emphasis added).15. Browning Marean, E-Discovery Looks Like Risky Business, Law Technology News,Oct. 17, 2007 ("A significant challenge facing the profession is the need to attain sufficientcompetence to deal with the many deep complexities surrounding EDD.")20081272 JOURNAL OF COMPUTER & INFORMATION LAWCohasset Associates, a Chicago-based record management firm, con-ducted a survey in 2007 of record management professionals and con-cluded, in part, this bleak assessment of the state of corporate electronicrecords: "The number and magnitude of organizational and operationalproblems reflected in the survey findings collectively represent stunningbusiness risks. Senior management should consider these risks unac-ceptable to have and untenable to continue.'6People who run corporations need more than just run of the mill gov-ernance, compliance, and regulatory attorneys; they need attorneys withcriminal defense experience. Companies that do not seek criminal de-fense attorney advice for the corporate boardroom expose shareholders tounnecessary risks. Attorneys with general criminal defense and eco-nomic criminal defense experience are steeped in dealings involving eco-nomic transactions with millions of potential documents involved indiscovery. And, since many white collar crimes are intent crimes whichoften hinge on circumstantial evidence, understanding how to combthrough the mountains of evidence on behalf of the client's case is secondnature. These cases so often depend on "[e]videntiary nuances and re-lated inferences. . .and often involve numerous documents, many ofwhich are complex financial records and sophisticated corporate materi-als that can only be fully understood with... those familiar with the va-garies of the underlying business transactions.' 7 Corporate lawyersmust learn to collaborate with their criminal attorney brethren to helpposition companies to design policies and practices that are defensible.Of course, given the magnitude of the issue (Armageddon, indeed),' 8 onebetter grasps the shorthand of Martin Vails' "It's raining!"16. Cohasset Associates, White Paper, Electronic Records Management Survey, 2007,available at http://www.merresource.com/downloadWhitepaper.htm?fileld=l(emphasisadded).17. Robert G. Morvillo, Barry A. Bohrer, and Barbara L. Balter, Twentieth Survey ofWhite Collar Crime: Motion Denied: Systematic Impediments to White Collar Criminal De-fendants' Trial Preparation, 42 AM. CRIM. L. REV. 157 (2005).18. Law.corn, supra, note 13.[Vol. XXV

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