e-discovery 2.0

While we don’t normally report news on the blog, this article seemed important enough to repost in its entirety…

SEEKING NEW AVENUE FOR COST-CUTTING, GOVERNMENT LAUNCHES BOLD NEW RECOVERY EFFORT

WASHINGTON — Senior Administration officials today took the wraps off of their latest effort to stabilize the American economy: The nationalization of the electronic discovery industry. According to a senior official who declined to be identified, “Even before the beginning of the current turmoil, everyone acknowledged that electronic discovery costs were out of control. Now, with litigation accelerating and corporate earnings plummeting, something had to be done. Without this action, a significant number of leading American corporations would be in danger of shutting their doors due to the overwhelming burden of e-discovery.”

A Single Common Portal

Effective immediately, all electronic discovery projects are being centralized under a single authority, the National Electronic Record Discovery Institute (NERDI). The Institute will be launching a nationwide electronic discovery portal on April 1, 2009 at www.ediscovery.gov. The site will build upon the recent success of the government’s economic recovery accountability site, www.recovery.gov. Said one Institute official, “Just drop the ‘r’ and insert a ‘dis’, and you get eDiscovery. It really is the next logical step in the government’s efforts to help the country in a time of profound need.”

Industry experts initially expressed skepticism about the government’s ability to make electronically discoverable information available in an efficient, expedient, and secure manner. Early plans had the government using the U.S. Postal Service and the network of I.R.S. tax return servicing centers as the logistical backbone for managing the collection and processing of documents. However, after negotiations with the National Security Agency, this step was eliminated from the process. Instead, all electronically-generated information in the United States will be instantly processed and made available through the ediscovery.gov site. Commented an NSA spokesman, “We have all the information anyway; why not make it easily accessible, instead of pretending it’s not here?” As for security, officials stated that “individuals can expect the same level of security and identify protection they’ve come to expect from their financial institutions and credit card companies, along with the additional protection and responsiveness they’ve come to expect from the Federal government.”

The Future of the E-Discovery Industry

What will become of the existing electronic discovery industry, made up of hundreds of individual vendors with aggregate revenue estimated to be in the $2-3 billion dollar range? According to a senior-level NERDI director, “One word: toast.” However, a group of industry software vendors and service providers has expressed open skepticism about the ability of a historically incompetent, multilayered bureaucracy to deliver electronic discovery services more effectively than the competitive market.

One vendor pointed out that it will be “difficult for the government to establish itself as a credible player in electronic discovery with millions of White House emails still missing without a trace.” In response, the group of vendors that make up the Top 5 Software and Service Provider lists on the 2008 Socha-Gelbmann survey (Autonomy, Clearwell, Fios, FTI, Guidance, Kroll, and LexisNexis) have announced an immediate consolidation of operations under the name ClearGuideAutoKrolLexFTios. Gloated new incoming CEO Rick Wagoner, “Our expectation is to roll over the government’s efforts like our new name rolls off your tongue.”

The American College of Trial Lawyers Task Force on Discovery (”Task Force”) recently came out with their final report based on their survey of the Fellows of the American College of Trial Lawyers (”ACTL”).  The project was conceived as an “outgrowth of increasing concerns that problems in the civil justice system, especially those relating to discovery, have resulted in unacceptable delays and prohibitive expense.”  After releasing an interim report, the Task Force issued its final say on the topic, which honed in on three major themes borne out by the Survey:

1. Although the civil justice system is not broken, it is in serious need of repair. In many jurisdictions, today’s system takes too long and costs too much. Some deserving cases are not brought because the cost of pursuing them fails a rational cost-benefit test while some other cases of questionable merit and smaller cases are settled rather than tried because it costs too much to litigate them.

2. The existing rules structure does not always lead to early identification of the contested issues to be litigated, which often leads to a lack of focus in discovery. As a result, discovery can cost far too much and can become an end in itself. As one respondent noted: “The discovery rules in particular are impractical in that they promote full discovery as a value above almost everything else.” Electronic discovery, in particular, needs a serious overhaul.

3. Judges should have a more active role at the beginning of a case in designing the scope of discovery and the direction and timing of the case all the way to trial. Where abuses occur, judges are perceived not to enforce the rules effectively. According to one Fellow, “Judges need to actively manage each case from the outset to contain costs; nothing else will work.”

In short, the Survey revealed widely-held opinions that there are serious problems in the civil justice system and that the discovery process, though not broken, is “badly in need of attention.”  While not cited specifically, a recent case highlights many of the Survey’s observations.  In Fannie Mae Sec. Litig., 552 F.3d 814 (D.C. Cir. 2009) the Office of Federal Housing Enterprise Oversight (OFHEO) responded to a third party subpoena and in the process incurred $6M in electronic discovery expenses.  While this case had a number of procedural nuances that fortunately make its holding fairly limited to the facts, this electonic discovery fiasco certainly is a poster child for a discovery process that is bursting at the seams.

The $6M problem started for the OFHEO when the individual defendants became skeptical of a limited production and obtained a Rule 30(b)(6) deposition, which confirmed that OFHEO had failed to search all of its off-site disaster-recovery backup tapes.  This inquiry led the OFHEO to enter into a stipulated order to avoid further contempt hearings.  As part of the stipulated order, the individual defendants submitted over 400 search terms, which covered over 600,000 documents.  Overwhelmed with the burden of conducting such a search and the need to hire 50 contract attorneys, the OFHEO objected that the list of search terms was “tantamount to a request for the dictionary,” since it resulted in a “retrieval of approximately 80 percent of the office’s emails.”  Unfortunately, the court ultimately held that the OFHEO needed to comply with the terms of the stipulated order even though the cost was a staggering “9 percent of the agency’s entire annual budget.” To add insult to injury, and despite their efforts, the OFHEO was found in contempt and sanctioned for not meeting the agreed upon discovery deadlines.

This $6M example brings us back to the Survey and the findings of the Task Force.  They proposed a set of Principles (modeling and citing the Sedona Working Group) that would “shape solutions to the problems they have identified.”  Several relating to e-discovery stand out…

• Promptly after litigation is commenced, the parties should discuss the preservation of electronic documents and attempt to reach agreement about preservation. The parties should discuss the manner in which electronic documents are stored and preserved. If the parties cannot agree, the court should make an order governing electronic discovery as soon as possible. That order should specify which electronic information should be preserved and should address the scope of allowable proportional electronic discovery and the allocation of its cost among the parties.
• Electronic discovery should be limited by proportionality, taking into account the nature and scope of the case, relevance, importance to the court’s adjudication, expense and burdens.
• The obligation to preserve electronically-stored information requires reasonable and good faith efforts to retain information that may be relevant to pending or threatened litigation; however, it is unreasonable to expect parties to take every conceivable step to preserve all potentially relevant electronically stored information.
• Absent a showing of need and relevance, a party should not be required to restore deleted or residual electronically-stored information, including backup tapes.
• Sanctions should be imposed for failure to make electronic discovery only upon a showing of intent to destroy evidence or recklessness.
• The cost of preserving, collecting and reviewing electronically-stored material should generally be borne by the party producing it but courts should not hesitate to arrive at a different allocation of expenses in appropriate cases.
• In order to contain the expense of electronic discovery and to carry out the Principle of Proportionality, judges should have access to, and attorneys practicing civil litigation should be encouraged to attend, technical workshops where they can obtain a full understanding of the complexity of the electronic storage and retrieval of documents.

As Oscar Goldman said about Steve Austin, the legendary $6M man:  “Gentlemen, we can rebuild him. We have the technology…” The electronic discovery “quagmire” appears to need the same type of radical makeover.  Data is proliferating at a rate far greater than the e-discovery competency of litigators and judges alike.  Tools are out there that can help tackle the proliferation problem, but the need for, and ultimate use of, such tools must be appreciated by counsel on both sides of the “v.”  Until notions of proportionality and cooperation start becoming common parlance for both litigators and judges we will unfortunately continue to see more $6M examples like Fannie Mae.

It’s been a little over a month since the news first broke that Guidance Software was the frog in an electronic discovery kettle whose water had just reached the boiling point, with the arbitrator in an employment case demanding, “I want this game-playing stopped.” We thought that, with a little time between the initial story and now, it would be worth taking a step back and looking at possible lessons learned — not so much for Guidance specifically, but for enterprises who find themselves in similar situations, as well as the electronic discovery community that serves them.

First, a quick summary. Based on published accounts, it seems like a classic discovery situation (that’s just plain old discovery, without the “e”): a party is sued and fails to produce a document that, lo and behold, surfaces via some other source, throwing the integrity of the sued party into question. After all, if one potentially incriminating document wasn’t discovered, then who knows what else could be out there?

Guidance contended that it did everything that was required of it, and that it didn’t have (or couldn’t find, despite good faith efforts) the emails in question. But, of course, that didn’t stop the litigation support community (via forums such as the Litigation Support List) from pouncing on the perceived hypocrisy.

After all, how could a leading, publically-traded electronic discovery company get caught up in such a mess? How could their cutting-edge electronic discovery technology not have saved them? Or their (hopefully) best-in-class internal electronic discovery processes? If the electronic discovery companies don’t have their acts together, what about all the other poor souls who lack their knowledge and expertise?

That last question is a scary one, particularly given today’s environment, and it’s why the situation has stirred up so much chatter out in the electronic discovery blogosphere. Almost without exception, commenters have jumped to one of two conclusions. Either (a) Guidance has not followed proper e-discovery best practices, or (b) Guidance has willfully chosen to hide relevant documents that it could have produced, because they would be detrimental to its case.

Let’s explore each of those conclusions in a little more detail.

First, is there any direct evidence that Guidance did not follow electronic discovery best practices? The answer there is murky. Certainly, from Guidance’s perspective, the answer is a resounding “no”. They continue to claim that the emails that were produced from another source did not exist on the various laptops, desktops, and servers that were part of the initial discovery request, and it is certainly possible that that is true. Perhaps Guidance had a 1-year retention policy for emails, and the emails in question were outside of that policy. Perhaps the individuals involved had legitimately deleted the emails in question prior to receiving a litigation hold notice, without thinking that they would ever be relevant to a legal matter. Certainly an independent observer has grounds for incredulity here, but it does not necessarily follow that Guidance did not follow electronic discovery best practices for a company of their size and resources. Certainly, from the reports, they did not exactly act in a way that earned much confidence from or favor with the arbitrator. However, that’s a completely different issue, and one which may be a legitimate tactical decision by Guidance (to avoid, for example, the high cost of recovering the corrupt backup tapes).

Second, what if Guidance willfully chose to hide relevant documents? At this point, there is no evidence that this is the case. And, you would think that of all of the companies out there, Guidance would be keenly aware of the extremely high level of risk associated with this strategy. A company well-versed in computer forensics understands keenly that the odds of any potentially negative emails not being out there, somewhere, in cyberspace are incredibly small. Thus there is little incentive to intentionally hide documents. If, however, a company did make such a perilous and unethical decision, it has nothing to do with a lack of e-discovery best practices or technology: it simply has to do with a lack of ethics.

So, has the coverage of the Guidance situation been nothing more than an electronic discovery witch hunt? Far from it… even if both of the “conventional wisdom” conclusions are in fact wrong.

Why? Because even if Guidance has its electronic discovery house in order and is acting with complete integrity, if there’s one thing that anyone in the electronic discovery business should have taken away from the last 5 years of court rulings, it’s that perception and transparency in electronic discovery is everything. Electronic discovery is technically complex and fraught with challenges, and companies – particularly those who are perceived as having vast expertise in the space, whether as vendors (i.e. Guidance) or institutions (i.e. pick your favorite TARP recipient) – have to act in such a way as to appear spotless before the court of law and the court of public opinion.

Assuming you already have your electronic discovery house in relative order (a baseline, fundamental requirement for doing business today), perhaps the most important take-away from Guidance is how carefully you need to consider how minor electronic discovery slip-ups, whether real or perceived, can bite, big time. The legal and media environment is primed to pounce on any hint of a cover-up or conspiracy, and enterprises must go the extra mile (or two, or three…) to ensure that their e-discovery efforts are, and will be perceived, as upright, ethical, and above reproach – or be ready and willing to pay the price in sanctions or loss of public confidence.

One of the more surprising aspects of the recession (at least to me) is the immediate and dramatic impact it has had on litigation support service providers. On one side of the coin, you have large players like SPi, which in 2007 was Attenex’s largest reseller, exiting the business altogether, and several other service providers in obvious difficulty. On the other side, I see a handful of service providers gaining share and attracting new investors. In the past month alone, I have spoken to a handful of investor groups who are either investing or looking to invest in litigation support service providers.

From what I can tell, there seem to be 3 factors that are causing problems for the industry:

1. The credit crunch:

Many service providers rely on “lines of credit” to fund day-to-day operations, meaning they pay their bills by taking debt secured against receivables and other assets. But in the last few months, that’s become much harder to do. Nowadays, banks do not want to give lines of credit to anyone, even if you pay them a higher interest rate. All the banks care about is reducing risk and strengthening their own balance sheets. So it has become harder for service providers to finance their businesses in this way.

2. Paper business is shrinking:

Many service providers started life as copy/scanning operations before expanding to include electronic information, and some still rely on the paper business as a steady source of cash. I have been told by several people in the business that demand for paper-services has fallen dramatically in the past few months. Their stories reminded me of what’s happening in the newspaper business: everyone knows that newspaper and magazine subscriptions are decreasing over time, but it’s happening much faster than anyone thought it would. As a result, it seems that service providers are getting less cash from the paper business than they expected – right at the time when banks are least interested in letting them borrow more to make up the difference.

3. Electronic data discovery is growing more competitive:

In the early days of electronic discovery, companies had little choice but to send out their data to the handful of service providers who had the processing, review and hosting facilities to manage it. Today, data volumes are much larger, making it a bigger market, but there are also lot more options: companies can use software to manage electronic discovery in-house; they can send it to a law firm, many of whom now have internal litigation support teams; or they can choose between larger numbers of service providers offering a much wider array of services.

Given these challenges, how is it that some service providers are able to grow and gain share, while others stumble? From my discussions with many firms – some doing well, others not – I see several common steps that the strongest players are taking to adapt to today’s harsher economic climate. These steps include:

• Strengthen the balance sheet, by raising money from equity investors and/or restructuring debt obligations. This provides more operating flexibility and reduces the risk of tripping over bank covenants.

• Sell or shutter the paper business. Just like making CDs is a distraction to the music business, paper is takes time and energy away from electronic discovery. Shutting down paper operations frees bandwidth and resources to concentrate on the growth part of the business.

• Innovate in service offerings. It is not enough to offer processing, review and hosting like everyone else. The best service providers have become trusted advisors by bringing their clients compelling new services, like for example early case analysis.

• Focus, focus, focus. In a big, competitive industry like litigation support, service providers have to find their niche. This can be a specific geography or an industry. But for the larger, national players it is typically a handful of key services which they get everyone (sales, marketing, project management, etc.) lined up behind selling and delivering.

Compared to many sectors of the economy (e.g., retail, travel, luxury goods), the litigation support services industry is well-positioned to grow through the downturn. But there’s no doubt things have changed, and many of the strategies appropriate in 2007 no longer apply in 2009.

When we first started brainstorming about our “Five Questions” feature a few months back, Tom Gelbmann was on our short list of “must-have” interviewees. As most readers are probably aware, Tom Gelbmann, together with George Socha, founded the Electronic Discovery Reference Model (EDRM) project and, also with George, directs the annual Socha-Gelbmann Electronic Discovery Survey. Since 1993 he has been managing director of Gelbmann and Associates, a consultancy based in Saint Paul, Minnesota.

1. There’s been a lot of buzz (particularly within the vendor community!) about the changes to the Socha-Gelbmann Electronic Discovery Survey. You and George have written about this a bit before, but we’ll try to take a slightly different angle: Beyond concerns about people taking rankings out of context or as an excuse for not doing due diligence, were there specific trends and drivers among end-users of e-discovery products and services that motivated the change?

The most important reason for killing the rankings was that they were too often interpreted by end-users as being a “one size fits all” evaluation of top product and vendors, and we thought this type of decision-making was becoming increasingly dangerous as electronic discovery was increasingly in its visibility and importance. It was similar to a prospective car buyer focusing in on the cars that earned the Car & Driver Car of the Year award. They may not need a BMW 3-Series or a Porsche Boxster if they need something to haul lumber or transport the kids to hockey practice. We also saw the opportunity to deliver something that could be useful in identifying software and service providers that meet a set of requirements based on the EDRM model. The result of the overhaul of the Survey we are currently working on will be the capability to specify requirements, dial up/down weighting of criteria and see which providers fit those parameters. Our objective is to deliver something more useful than the rankings.

2. Your other main project is, of course, the Electronic Discovery Reference Model (EDRM). How did EDRM get started? Was it you and George scribbling on the back of a napkin in a coffee shop?

It wasn’t quite on the back of a napkin, but close – it was an Etch-a-Sketch®! Actually, the idea came out of the 2004 Socha-Gelbmann Electronic Discovery Survey. After the dust settled in the fall of 2004, we took a step back to look at what we learned. It wasn’t difficult to spot the #1 issue concerning consumers and providers: confusion and frustration over the lack of standards in the electronic discovery industry. Many people told us this was the Wild West and something needed to be done. That something was a standards initiative. The reference model approach came from looking at the tremendous value the Open Systems Interconnection Reference Model had on computer communications. Developed in the late 1970s, this model provided a common structure for development of products. We thought a similar approach would work for electronic discovery. We started talking to providers and consumers about this idea and initially thought we may get 15 or so organizations interested… 20 tops. We now list the EDRM alumni of 500+ individuals from 140+ organizations.

3. EDRM will be celebrating its 5th year at the upcoming May meeting in Saint Paul. What’s surprised you most about the first five years of the Project?

The biggest surprise by far is that there was a second year, to say nothing of a fifth year that we are now planning. We started out with the objective of keeping the project to a single year, thinking that having a hard deadline would motivate everyone to complete the project on time. We also knew that placing all content in the public domain would attract interest and participation in this initiative that would help the entire industry.

4. The global recession is having a tremendous impact on the electronic discovery community. Any thoughts on how the landscape will be reshaped coming out of the storm?

Potential influencers keep surfacing, making it difficult to anticipate what is around the corner. Certainly, we have seen and will continue to see consolidation of providers. Acquisitions will likely continue as will dissolutions. It is clear that everyone is tightening the belt. Some corporations and law firms who had begun to expand internal electronic discovery operations will sharply curtail or stop the expansion. Experienced, highly capable people will be out of a job and looking for new opportunities, which means short term turmoil for these folks, but hopefully long term success within well managed organizations. The volume of work doesn’t seem to be ebbing yet, so there is great opportunity for the survivors.

5. You and George Socha are the “Dynamic Duo” of electronic discovery and have been working together for a long time.  Anything you want to reveal about George that might not be generally known?  Hidden talents? Secret ambitions?

Interesting question. George is a man of many talents. One pleasant surprise to me was learning of his expertise in baking. I thought I was good at making good pie crusts, after a dozen years making Thanksgiving pies with my daughters. My crusts have gotten rave reviews from the family. But George is the real expert. His creations are a work of art. When it comes to secret ambitions, I think he would like to assemble a massively parallel computer complex in his home office. He has a good start with a half dozen monitors, several computers, servers, etc. and shows no signs of slowing down.

At LegalTech New York there was still considerable discussion about ECA, which I of course assumed meant early case assessment.  And, while I have a good idea of what ECA means in the practice of electronic discovery, it struck me that many electronic discovery vendors were making up definitions to suit their own needs.  So, in a search for the one true meaning I began my search in earnest.

First, I went to Wikipedia.  Apparently ECA can stand for a whole host of things, including:

• Evangelical Christian Academy, a school for missionary children in Madrid
• Entertainment Consumers Association, an entity representing American game consumers
• European Cockpit Association, the representative body of 34 national flight crew associations in Europe

After a brief diversion into the mandate of the European Cockpit Association I decided that Wikipedia wasn’t the answer. Then I came across a pretty illustrative post from the Settlement Perspectives blog. There, the author struggles with the same quest and ultimately concludes that an early case assessment is a “disciplined, proactive case management approach designed to assemble, within 60 days, enough of the facts, law, and other information relevant to a dispute to evaluate the matter, to develop a litigation strategy, and to formulate a settlement plan if appropriate.”

What’s interesting about this definition is how important *early* is to a successful ECA.  While it seems both obvious and axiomatic, doing this process within 60 days seems to hold some of the secret sauce.  According to Schering-Plough’s VP of Litigation and Conflicts Management: “in 60 days…  you will know 80 percent of what you will ever know about a case.”

While this 60 day window initially seems reasonable, I’d wager that the timeline can be exponentially more aggressive, especially for practitioners leveraging next generation search and analytical tools…

As an example, let’s assume a fairly broad collection of relevant electronically stored information (ESI) where counsel wisely iterates on their search strategy to divine 80 percent of the significant case facts. This process could and should occur with 60 hours, much less 60 days. Not only is this compressed time frame dramatic in terms of moving the window from two months down to one week, but in reality an ECA needs to be done this quickly in order to facilitate preparation for the newly accelerated meet & confer conferences, as well as providing counsel with the insights to develop a settlement posture before the parties have become entrenched for expensive and protracted litigation.

We live in a time where information is now presumed to be instantly available.  While perception isn’t quite yet reality, it’s incumbent upon modern litigants to have real case data available within days, if not hours, from the inception of litigation.  Since the opposition probably has a significant jump start on the facts (since they filed the lawsuit), the defendant doesn’t have the luxury of taking two months to determine 80% of the relevant facts.

“Unless I’m wrong, and I’m never wrong…” this means that counsel should be conducting ECAs in nearly every case.  It should be “must have” instead of a nice to have. However, anecdotal evidence suggestions that ECAs aren’t performed routinely today.  The question is why?

Aside from the educational component and the use of old school, brute force review methodologies, the answer may lie in a common litigation mindset:  i.e., the desire to avoid costs for as long as possible.  Even in the Settlement Perspective piece the author admits to this mindset:  “I would prefer to avoid ‘all the major work’ on a case if I can.”  While he doesn’t seem to lump data analytics into this camp, this pervasive notion is still readily apparent.

In order to make the sea change where ECA is a standard operating procedure in every matter, counsel must understand that while some costs are incurred early in the process the benefits are crystal clear: i.e., determining customized case strategies early in the matter to decide whether to fight or settle.  Similarly, corporate clients must recognize that the benefits outweigh the costs and require their litigation counsel to include this process in every significant matter.  Failure to do so merely widens the rapidly growing information gap, leads to uniformed case decisions and heightens confusion with the European Cockpit Association.