Donnahill's List: eDiscovery

• As it turns out, companies don't usually understand the importance of knowledge and document management, until they are legally required to find and hand over all documents. The process of ediscovery is usually complicated by the fact that companies don't know where their information lives.

• Or so says a recent study by the American College of Trial Lawyers and the Institute for the Advancement of the American Legal System.

    

  Turns out, many companies are still not in the habit of retaining and organizing their documents in a logical structure. In fact, it's so hard to uncover materials related to the legal cases that costs are rising as a result. Out of the 1,400 lawyers surveyed, 87% said that electronic discovery is too costly and driving up the price of litigation.

    

  This is not due to their lack of concern for the nature of the marketplace; it is more from a reactionary model as opposed to a proactive one. In most cases, online documents, emails, policies, procedures don't often live in a well-laid out, easy-to-find format.

• Companies are simply not prepared, when it comes to organizing and storing documents.

    

  The study also says that “without a proactive approach to retaining and organizing their electronic documentation, the company has just grown that litigation cost exponentially”.

• Such a proactive approach involves the following:

     
   
  • Storage structure: Implement a formal and stringent document control system, so that costs to litigate can be diminished.
   
       
   
  • Searchability: Now that information has been organized sufficiently, make it searchable. Often determining your search terms can help with the organization of documents. Create an organized electronic database or a document retention platform with the ability to quickly search for items. Allowing lawyers to perform a detailed search using document criteria, metadata and content simply saves both parties money.
   
       
   
  • Retainability: Have a retention policy in place, which immediately executes “save everything”. Once a company has been served, it must retain all documents related to the litigation. When considering an electronic document management system, one that meets your retention criteria is the best.
   
      

  These proactive initiatives will save you money should legal issues arise. They will also keep you and your company organized and up-to-date on policies and procedures. Good knowledge management has a funny way of keeping out of trouble.

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• If you attended an e-discovery legal conference recently, you probably noticed a common theme among corporate counsel, litigators and judges: There is an increased focus on bringing the cost of e-discovery into alignment with the stakes of the case.  

   

  Many are concerned that the goal of a “just, speedy and inexpensive determination of every action and proceeding,” referenced in FRCP Rule 1, is eroding. There is even talk of changing the Federal Rules of Civil Procedure again to address the issue. While there may be another rule change in the future, change will take time and will require interpretation. After all, many still struggle to interpret and apply the 2006 Electronic Discovery Amendments.

   

  So what steps should we take to lower the cost of e-discovery in the meantime? For starters, we should follow the rules already in the books.

   

  The view from many at the bar is that the judiciary should provide clarity by consistently and firmly applying FRCP 26(b)(2)(C), which states, “the court must limit the frequency or extent of discovery if it determines that the burden or expense outweighs its likely benefit.” Not unlike practitioners, some judges understand e-discovery better than others and the inconsistent application of this rule in the e-discovery context causes uncertainty. The cost of this uncertainty is over-compliance, which adds to the burden of litigation cost.  

• Of course, it is hardly fair to cast blame on the bench, as the bench would have a much easier job if the bar took its obligation outlined in FRCP 26 more seriously. Rule 26(g)(1)(B)(iii) requires attorneys to attest that their discovery request is “neither unreasonable nor unduly burdensome or expensive, considering the needs of the case, prior discovery in the case, the amount in controversy, and the importance of the issues at stake in the action.” The scope of discovery requested in the heat of litigation and under the banner of zealous advocacy is certainly larger than necessary in some cases.

   

  In the absence of further guidance from the courts or the Federal Rules, what can an attorney do to reduce both cost and the likelihood of a negative outcome?

   

  There is an aspect of e-discovery expense that in-house and outside counsel are well positioned to influence: Take a closer look at the people, process and technology you use to comply with your e-discovery obligations. There is a big cost difference between an e-discovery project that is properly planned and managed and an e-discovery project that is ad hoc and reactionary.

   

  Many lawyers err on the side of preserving, collecting and reviewing too much information because they are concerned with the small (but potentially very bad for practice building) possibility of missing a few relevant, or worse, privileged documents.

   

  Many lawyers also depend on people who are not well-versed in e-discovery law and technology. They use processes that are not adequate to ensure quality, while minimizing cost and using technology that has fallen behind the evolutionary curve.

• The enormous cost of electronic discovery can sometimes be justified by the information it yields. Today’s business is conducted electronically. In 2010, 2.9 billion e-mail accounts, 2.4 billion instant messaging accounts and 2.2 billion social networking accounts churned out 107 trillion e-mails, 25 billion Tweets  and 30 billion pieces of Facebook content, and at least 25 percent of it was business-related. (Radicati, S., “E-Mail Statistics Report, 2010”, The Radicati Group, Inc.). In 2001:

   

  1. Ninety-three percent of all business documents were created electronically

   

  2. More than 50 percent of those documents were never printed

   

  3. Seventy percent of all written data was stored in electronic form

   

  More important to litigants than the increase in the volume of the information available through electronic discovery, however, is that the very nature of the information has fundamentally changed. In the age of electronic discovery we have “moved beyond collections of highly edited and carefully prepared memoranda and official records to the palpable intimacy and prolixity of e-mails, instant messages and social network chatter.” (Hamilton, W., Litigation, "Sampling Helps Keep Relevance Relevant"; Vol. 37, No. 4). Most of us don’t have to look much further than our own sent messages, deleted messages and text history to find correspondence we probably should not have sent. Welcome to e-discovery!

   

  In recent years the informal, unedited and presumptively confidential data recovered from litigants has played a pivotal role in some of this country’s highest-profile civil disputes:

   

  1. The SEC’s fraud case against Goldman Sachs and Fabrice Tourre, a grou

• As you consider how much of your litigation budget to allocate to electronic discovery, you should keep in mind that the proverbial “needle in a haystack” of electronic documents is significantly sharper than the ones you’re accustomed to finding in a warehouse. This is especially true of cases in which the intent of your opponent is an issue (e.g., contract formation, fraud and other business torts).

   

  Although for now the cost of a full-fledged analysis of your opponent's data can be cost-prohibitive, in the near future all litigants in all cases will benefit from the information that only the largest and most expensive cases enjoy today.

• Bringing E-Discovery In-house

   

  There are several key questions an organization must consider in today’s business climate. Is your organization prepared to respond to an e-discovery demand imposed by regulators, civil parties or a competitor? Is your organization able to find and produce all relevant documents? If so, at what price and how fast?

   

  Only about 1% of organizations are reportedly prepared for full-scale e-discovery activities. As a result, the vast majority of organizations facing litigation are forced into a costly reaction mode in order to respond to discovery requests within court-imposed timelines.

   

  So, when the clock is ticking and the meter is running, how do you sift through internal databases, networks, computer systems, servers, archives, backup or recovery systems, laptops, PDAs, mobile phones and pagers to assess your legal risk and defend your organization? And further, how can you possibly meet the rigorous demands of the impending e-discovery while also preparing your organization for litigation that may be looming?

• Take Control of Your Information Now

   

  In most cases, the review of information for relevance and privilege and the processing of vast volumes of data in preparation for formal legal review are the most expensive elements of e-discovery—accounting for as much as 50%-80% of the budget when using external sources. Therefore, more and more organizations have acquired advanced tools to help them to control the costs and risks of the e-discovery process. Most notably, organizations have started to deploy information management software and systems to help them respond to a specific legal matter now and prepare for future litigation.

   

  Litigation Response and Readiness are Moving Targets

   

   While the latest e-discovery and information management technologies have made great progress toward putting organizations in control of their information assets and liabilities, the environment is dynamic and requires solutions that can scale and adapt to new realities:
• • Even after 50 years, Moore’s Law still applies: Every 18 months, the volume of our stored data doubles. At that rate, the amount of information stored by an organization will have grown 100 times over in 10 years.
   
  • The legal industry is one of the most conservative industries out there. Adoption of new technology is not a revolutionary process, but an evolutionary one which leads to higher costs from prolonged inefficiency.
   
  • The use of new social media such as Twitter and Facebook and non-searchable multimedia platforms like YouTube is growing exponentially;.
   
  • With the introduction of cloud computing, information is everywhere and nowhere at the same time.
   
  • The number of law suits will only increase in the coming years due to the credit crisis, but also due to the increasingly litigious nature of our society.
   
  • Therefore, the only real solution to solve the e-discovery burden now and in the future is to start properly managing all of your enterprise information as part of daily operations. Figure 2 shows the relation between e-discovery and information management.

• Proactive eDiscovery: from litigation responds to litigation readiness

   

  While in-house e-discovery systems are generally implemented to investigate a specific legal matter, more and more organizations are looking for a solid and robust foundation from which to pursue proactive, enterprise wide objectives for information management.

   

  In fact, the costly and disruptive nature of e-discovery often triggers a broader information management initiative championed by executive leadership.

   

  Proper information management initiatives may be based upon principles similar to e-discovery (i.e., identification, collection, review, etc.), but it often requires additional technology, procedures and user training to help organizations achieve corporate governance despite the continued— and rapid—growth of their data populations.

   

  Information management involves not only archiving, but also the implementation and enforcement of retention and disposition schedules to ensure organizations are not storing vast volumes of information unnecessarily. It is actually quite similar to the culling process during e-discovery, yet in a broader form that is widely adopted as part of daily operations in all departments.
• mail, SharePoint, HRM files, project files, customer files, official company records and legal contracts all contain potential future legal liability and cost considerations.  For example, retaining 100,000 emails—which may have important files attached—in one’s inbox, sent folder or hard disk exposes the organization to more risk and unnecessary storage costs. And the vast information stored on backup tapes and in MS SharePoint collections in a completely unstructured format presents its own potential risks, especially if the data is related to projects or litigation involving human resources or C-level management. Organizations will always have these types of unstructured data sets, but their potential risk can be managed by the right information management technology and protocol.

• Information collections such as the ones noted above need to be ordered and classified in a filing plan, which can be done in a rather straightforward and pragmatic way. This action limits the amounts of data (and thus the potential cost of litigation), makes early case assessment possible on your live data, and limits the need for the expensive processes to collect and preserve all data in advance.

   

  In the end, one will become litigation ready by making litigation response as unobtrusive as any other daily operating procedure.

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• In today’s evolving workplace each department or ‘business unit’ is treated as its own individual business, with its own cost centre, overheads and profit targets. Although this is good for healthy profits and board level reporting, it can also be the cause of conflicting objectives and issues with inter-department communication.

   

  A legal department for example needs a state of the art software solution to deal with a crucial litigation, while the IT department needs to reduce spend by 35% to justify a new server they believe to be more essential to the smooth running of the business.

• Although storing 250GB of data can cost less than $250, hiring an external firm to process and review this data for e-discovery can cost up to $1 million. The impact of these costs is particularly noticeable to in-house legal teams and support staff who are often at the front lines of any e-discovery activities occurring within their organizations. Even though advanced information access technologies are available to help minimize these costs, many legal professionals do not yet have these tools in place, and for those that do, they are still confronted with the primary challenge to effectively managing e-discovery costs: the continued addiction throughout organizations to keeping and storing too much electronic data.
• Unfortunately, many people are pack rats at their jobs, collecting and storing every e-mail they send and receive as if the entire company would crumble without a solid foundation of ever-growing data repositories on which to rest. But data retention isn’t synonymous with knowledge management, and knowledge management is what is supposed to be the goal of any kind of implicit or explicit data retention activity. For “data” to become “knowledge”, data must be structured and organized, and an understanding must be in place about the impact of that data.

• 1. E-Discovery

  Recent amendments to the Federal Rules of Civil Procedure make electronically stored information such as e-mails, instant messages, voicemails, e-calendars, graphics and data on handheld devices discoverable in litigation. The discovery of electronically stored information (ESI) is known as electronic discovery.   

  The explosive growth of ESI has increased the cost and complexity of the e-discovery process and forever changed the face of large-scale, complex litigation. New roles in litigation support, e-discovery and trial technology have emerged to address the electronic realities of a digital age.

• Nearly every company doing business in the U.S. faces litigation at some point, and most view this as a cost of doing business. Unfortunately, this inevitability of litigation has created an additional side effect: Many organizations waste a lot of money on e-discovery.

   

  Discovery represents, on average, from 30 percent to 70 percent of the total cost of litigation, with many organizations spending literally millions of dollars per year to identify, preserve, collect process and analyze both paper documents and electronically stored information, with the bulk of the expense around electronic media.

   

  During the past five years, plaintiffs have become more aggressive (especially the class action plaintiffs’ bar), legal standards for discovery have become more stringent and, increasingly, courts are more likely to sanction those who do not follow the rules. Nevertheless, even though discovery is a “must do,” we still see a fair amount of wasted money and efforts.

• 1. Failing to track spend on e-discovery. Even large organizations with disciplined supply chain controls often fail to track spend on e-discovery. Many e-discovery costs are buried within individual matters, and little effort is made to identify the total e-discovery costs separately from overall litigation spend, or use total spend to negotiate better rates with providers. One large corporation spent more than $50 million on litigation last year, and was surprised to learn that $26 million was spent on e-discovery alone—everyone had thought the number was much less. Adoption in July of the LEDES billing codes should make it easier to break down discovery costs from outside vendors. Still, the larger issues remains that total discovery spend needs be tracked not only within a matter, but also across all matters. The total may surprise you.

   

  Another consideration here is whether or not in-house counsel even wants to know what they are spending. Some in-house counsel may not want to know what they spend on e-discovery, and are fearful of its inspection. With legal departments increasingly under cost pressure, there is a tendency to lump e-discovery costs into overall litigation costs, saying, “We were sued, we had to discover, what else could we do?” While litigation and discovery may be inevitable, companies can still benefit from taking a hard look at where they spend money on e-discovery.   

• 2. Failing to negotiate on keywords. Sometimes during the reactive firefight of litigation, companies fail to negotiate keywords with their opponent. In a widely reported case, the Federal Housing Finance Agency had to spend 9 percent of the agency’s entire budget restoring backup tapes and searching data in 2008-2009 because they agreed to an order that allowed the requesting party to choose any keyword it wanted. The courts allow and even encourage parties to negotiate discovery terms early in the process, but often companies do not negotiate. Do not just take what is given to you by your opponent.

   

  3. Failing to have ongoing, routine and defensible data deletion processes. Year after year, companies accumulate more and more electronic data, which in turn can drive up discovery costs. Very few organizations have implemented ongoing, routine and defensible data deletion processes as a regular business process. Companies have a lot of electronic junk – older e-mails and files with no or expired retention requirements and little business value. If done intelligently, this older information can be deleted without incurring the wrath of the employees.

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• Budgets

   

  Budgets were another obstacle. Some e-discovery purchases promise quick ROI (such as a processing and early case assessment tool used on a single case).  But these kind of investments may be made at the departmental level by business users who aren’t interested in a more comprehensive solution beyond their own needs. More extensive CAPEX investments can be stymied for a number of reasons. The CEO or CIO may not realize the extent of the problem until it hits them or their own staff directly.  It may be that, internally, the company does not have the resources for a DIY approach or finding and training staff might be harder than just continuing to outsource. Other buyers are delaying adoption for the “next generation” of technology from the evolving vendor market (regardless of the money they could be saving themselves now), citing past systems migration disasters. The decision involves durability, utility, the likelihood that an investment will be “legacy” in 12 months, and broader potential applications. Ultimately, it can be easier to just push e-discovery expenses through OPEX with a consultant rather than attempting to get CAPEX investment and a full-time employee, particularly since legal is often considered a cost center within the business, not a revenue driver.

• “Nearly three years after theFederal Rules of Civil Procedure (FRCP) were amended, many corporations have made great progress in implementing both short-term tactical and long-term strategic plans for e-discovery,” said Adam Cohen, senior managing director of FTI Technology. “The study highlights specific e-discovery best practices in effect today at leading corporations, and can serve as a practical guide for all corporate counsel in targeting and improving this complex and costly process.”

• Among the findings:
   

    
   
  • Legal review: 72% of respondents cited legal review as the most expensive phase of e-discovery, and gave numerous suggestions from experience on how corporations could reduce costs.
     
    
  • Using fewer providers: 97% of respondents cited using fewer providers to support the e-discovery process as one of the more important considerations in the selection process.
     
    
  • Defensibility: The most important factor for selecting both software and legal services was defensibility, with 62% naming it as a top factor in selection of e-discovery software and 52% for legal services.
     
    
  • E-discovery vendor viability: Ahead of cost, corporate counsel prioritized selecting a provider with long-term viability, given many uncertainties in the rapidly evolving e-discovery market. Viability was listed as the second most important factor when selecting a software vendor (by 41%) and a legal service provider (by 45%).
     
    
  • In-house control: 86% said they had developed and implemented more effective and holistic information management, retention and destruction policies, and had also reduced the overall amount of data in-house to streamline review.
     
    
  • E-discovery cost savings: Cost was cited as the third and fourth most important factors respectively when selecting legal service providers and software.
   
    

  “As part of this study I spoke with an in-house legal team member that had reduced their e-discovery and legal fees by as much as $2 million in one year through implementing more efficient legal review software and processes,” said Ari Kaplan, legal consultant and principal of Ari Kaplan Advisors. “The findings are exciting in that they go beyond theoretical best practices and show tangible, quantifiable evidence of the measures that corporations are using to reduce e-discovery costs today.”

• The study targeted Fortune 1000 companies and is based on interviews of 29 inside counsel, project managers, records managers, and IT leaders with responsibility for e-discovery.  Representing companies from some of the most litigious and regulated industries, including financial services, energy and pharmaceuticals, 93% of respondents were from Fortune 1000 companies and nearly half of the respondents were from companies with total annual revenues greater than $10 billion.  Interviewees were asked to share their advice with those just beginning the e-discovery process, and answered a number of questions relating to the most expensive steps in e-discovery and their own strategies for controlling e-discovery costs. Interviews were conducted by Ari Kaplan, legal consultant and principal of Ari Kaplan Advisors, during the summer of 2009.

    

  FTI will host a November 5th Web seminar on the findings with Ari Kaplan of Ari Kaplan Advisors and Adam Cohen of FTI Technology. To register for the event, please visit the FTI Technology site.

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