e-discovery 2.0

In the Southern District of New York it”s easy to get eclipsed (in the electronic discovery world at least) by the Honorable Shira A. Scheindlin (of Zubulake fame). And yet, the latest case out of this district was penned by Magistrate Judge William H. Pauley and contains one of the most memorable preambles to a case that I”ve read in a while:

“Electronic discovery requires litigants to scour disparate data storage mediums and formats for potentially relevant documents. That undertaking involves dueling considerations: thoroughness and cost. This motion illustrated the perils of failing to strike the proper balance.”

In Harkabi v. Sandisk Corp., 08 Civ. 8203 (WHP) (S.D.N.Y. Aug, 23, 2010), aside from the stellar opening, Magistrate Pauley illustrates that the culpability standard for certain technology companies may actually be higher than for their low tech counterparts. The discovery dispute began after the plaintiffs claimed that the defendant Sandisk failed to produce their former laptops and corporate email. When the underlying action (for failure to pay the plaintiffs their “earn outs” after an acquisition) began to heat up the plaintiffs wisely sent Sandisk a preservation letter.

Sandisk, upon the receipt of the letter sent a “Do-Not-Destroy” memorandum as well as securing the laptops issued to plaintiffs. After some time, the laptops were imaged and the data was saved on a file server. Unfortunately, this is where things took a turn for the worse.

After plaintiffs” evaluation of Sandisk’s production, it was discovered that materials from their laptops had not been produced and neither had some of their emails. After a significant amount of wrangling and Sandisk”s “best efforts” they admitted that they couldn’t find the laptop data anywhere — finally conceding that the laptop images were lost sometime during the data transfer. Because Sandisk did not “engage this reality” they didn’t commence a search of backup tapes for some considerable time. So, although the court was confident that the omission would eventually be resolved, the event might have never been detected but for the plaintiff’s diligence and in the final analysis it still ended up costing plaintiff considerable sums ferreting out the issue.

With this as a backdrop the Magistrate began his analysis of the spoliation and delayed production issues. The plaintiffs proffered four arguments for why a culpable state of mind could be inferred:

1. A one month delay in counsel’s issuance of the legal hold memo. This argument was rejected by the court since the delay didn’t appear to cause any real harm.
2. Failure of Sandisk’s counsel to adequately supervise the legal hold process. Here, the court concluded that counsel was “notably absent at critical junctures” of the preservation process, including the copying of the laptop data.
3. Sandisk’s “expertise in electronic data storage.” Here the court appeared to hold Sandisk to a higher standard, noting that this finding “must mortify [Sandisk], a global business that champions itself a leader in electronic data storage.” The court further gilded the lily by stating that SanDisk”s “size and cutting edge technology raises an expectation of competence in maintaining its own electronic records.”
4. Sandisk”s delay in revealing that certain information had not been included in its native production. Here the court also found some lack for forthrightness during counsel’s representations about discovery completeness.

Not surprisingly, with adverse findings on three of the above arguments, the court found defendant was “at a minimum” negligent stating that the “cascade of errors” ultimately aggregated to a “significant discovery failure.”

With these findings in the record the court then went on to the sanctions analysis. Here, there wasn’t enough evidence supporting terminating sanctions, but an adverse inference instruction was appropriate since the plaintiffs had “lost access to relevant evidence.”

Turning to the delayed production, the court found that because it appeared that the emails would eventually be produced, the prejudice “is contained.” Thus, terminating sanctions were not warranted. Yet, because defendant’s misrepresentations obscured the deficiencies and “stopped discovery in its tracks” the court found that monetary sanctions in the amount of $150,000 were appropriate to compensate plaintiffs for their “‘David-and Goliath-like” struggle for electronic discovery.”

Many of these errors are fairly typical of the types of e discovery disputes seen today. However, this case does seem to highlight the raised bar for any company that should “know better” when it comes to electronic discovery issues. Here, Sandisk certainly isn’t an e-discovery company per se, but their expertise in ESI storage certainly made it difficult to claim ignorance. This raised bar was seen in spades when Guidance Software was recently accused of gross negligence and e-discovery bad faith during an employment dispute. In combination with the Sandisk case, it’s not surprising to see the standard of care elevated for folks who should really know better. So, for anyone in the e-discovery (or tangentially related) industry, it’s probably a good idea to become even more diligent when responding to electronic discovery requests.

Yesterday, Clearwell announced a new module for identification and collection, which is available with Version 6 of its e-discovery platform. This sits alongside the existing modules for processing/analysis and review/production, extending Clearwell’s capabilities upstream to a part of the e-discovery process typically done by IT. The new module has already been purchased by GlaxoSmithKline, Nisource, and several other enterprises and government agencies, and the initial response has been incredibly positive. I wanted to say a few words about what led Clearwell to add the Identification and Collection Module, and how it’s different from other solutions.

Over the past few years, I have seen a transformation of the e-discovery software market. Previously, there were no specific people within corporations or government agencies dedicated to e discovery, and no formal budget was allocated to it. As a result, purchase decisions were typically made at the departmental level by legal or information security people who could “find the money” by borrowing from other projects. In stark contrast to that, today most major corporations have people specifically responsible for electronic discovery, and many of them have company-wide initiatives to lower costs by bringing e-discovery in-house. Companies are issuing more and more formal RFPs; performing proof-of-concepts as part of the evaluation process; and creating committees of both legal and IT to make purchase decisions.

Some vendors have sought to play up a “gap” between legal and IT teams when it comes to e-discovery. They manufacture survey information claiming that collaboration and communication between legal and IT is decreasing. Our experience has been exactly the opposite. At corporations like Coca Cola, Home Depot, and hundreds of others, we find close, collaborative relationships between legal teams and the IT professionals dedicated to help them. There’s now a new career path, sometimes called “legal IT” or “e-discovery manager”, for technically savvy IT folks who understand legal’s requirements. I was happy to see at LegalTech this year that legal professionals would often come by our booth with a colleague and say to us, “I brought my IT guy with me because I want him to see this”.

It is precisely because legal and IT are working so closely together that they want a single product to manage all their e-discovery activity. That’s what led us to add the Identification and Collection Module.

Why is offering a single product for everything from identification through production such a big deal? Clearwell’s approach offers two main advantages over alternative solutions. First, like earlier versions of Clearwell, the Identification and Collection Module is very easy to use – so much so that, with IT’s permission, legal could even manage the collection process itself. For example, existing products like Guidance Encase require users to write scripts to create filters for targeted collections; with Clearwell, everything is point-and-click through a simple web UI. That makes identification and collection accessible to non-technical users.

Second, because identification, collection, processing, early case assessment, review and production can now all be done using a single product, Clearwell is able to provide end-to-end reporting through the entire e-discovery life-cycle. For example, Autonomy’s disparate e-discovery products (Introspect, Aungate, etc.) require multiple log-ins, all have different UIs, and different data models. With Clearwell, all of these are the same, giving you complete control over your data – at significantly lower total cost of ownership.

You can sign up for a product demonstration or even evaluate the product for free. Take a look – and leave a comment to let us know what you think.

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Learn More On Ediscovery Litigation.

Last month at the Annual Conference of the International Legal Technology Association (ILTA), we saw an interesting trend – more and more law firms are asking how they can use e-discovery technology to provide greater value for clients. ILTA’s Law2020 initiative identifies the factors driving the shift in law firm priorities from reactive e-discovery at any cost to proactive measures designed to maximize value for clients. Ultimately, the client is going to have to drive innovation, and the client has certainly spoken in 2010.

I wanted to share my thoughts on how I believe the law firm of the future can benefit from promoting electronic discovery expertise to its clients as well as how becoming the trusted advisor in this area can lead to greater sustainability for the firm and lower client attrition rates.  I found the most recent issue of ILTA’s Peer to Peer magazine (“Law2020”, Issue 2 Volume 26, June 2010) fascinating, and the articles echoed much of what I am seeing in the legal marketplace today.  A handful of forward-thinking firms are embracing alternative fee agreements (AFAs) and promoting technology and efficiency to their clients in an attempt to both reduce the cost of the legal services being provided but also improve the overall experience for the client.  In an ancient profession, we are seeing the first widespread demand from clients for better customer service and accountability.  Clients are shopping multiple firms, and the hooks that firms had in many of their clients are disappearing as more and more corporations bring legal services, such as e-discovery, in house.  As one might say, the legal marketplace has become a “buyers’ market.”  As Richard Susskind predicts, we may see the legal services provided by law firms become more of a commodity in the coming decade.

Traditionally, law firms have not provided services beyond traditional representation, and although many law firms now have in house litigation support or legal technology departments, the services they provide from these departments are limited.  These departments often become a cost center rather than a profit center, and clients are demanding greater efficiency – to the point where law firms are seeking outside help from vendors to manage large electronic discovery projects.  This may not change much in the coming years, but there is a wonderful opportunity for law firms to enhance the services they are providing through these departments and become trusted advisors to their clients in the areas of electronic discovery, legal technology, and information management.  Given this opportunity, why are firms allowing outside consultants to collect all of the fees associated with advising their clients in this area?  Perhaps it is due to a lack of true project management expertise within the firm that prevents the firm from providing these services, or perhaps the firm believes that clients will not pay for proactive legal services.  Whatever the reason, firms are allowing a potential revenue opportunity and excellent client relationship opportunity to slip away.

Sustainability

In an interview in Peer to Peer, Darryl Cross said, “[Law Firms] must learn more about their clients and what they need in order to proactively serve them, because our studies show that once you cross the third or fourth practice group there’s almost no risk of the attrition of a client – it plummets to below 10 percent.”  In today’s legal marketplace, firms would do well to find ways to engage the client at multiple levels, and across multiple practice groups or partners.  One way they can do this is by becoming the trusted advisor for all things related to e-discovery – including early case assessments, culling and review techniques, proactive litigation readiness, , and assisting with vendor relations as clients bring more technology and processes in-house.  This will not only build trust with the client, but it will make processes more defensible and reduce the risk of error because everyone involved is familiar with the process.  Because e-discovery touches many practice areas, the opportunity to engage clients on these issues would be numerous.  Firms might even do well to appoint a partner who manages these proactive relationships with clients and seeks out opportunities to better serve the client through an extended offering of value-added services.  Centralizing this function would likely lead to better use of resources and uniformity across engagements, driving down costs.

Strategic Partnerships

Flash forward to 2020 for a moment, and imagine, if you will, a video conference (conference rooms are soooo last decade…) where a law firm’s client relationship partner is explaining to a client that by implementing various technology solutions, the client can achieve dramatically lower costs in litigation, and, after an explanation by the partner, a technology vendor presents a solution custom-tailored for the client. During the presentation, the partner and the client ask questions to ensure that the solution meets all of their needs and will be both defensible and efficient.  In 2020, perhaps all firms will be doing this; in 2010, though, today’s law firm can benefit tremendously by getting involved in this process and advising clients on the multitude of options with regard to technology.  For example, there are many deployment options available for most enterprise-class e-discovery solutions, and the firm can help the client decide which of these options would best suit their needs.  At the end of the day, the client will not seek out technology because they are fed up with paying too much to law firms; they will partner with a law firm to proactively reduce costs.  This type of arrangement and consulting service could even be the catalyst to begin talks about AFAs and really begin learning what the client really wants or needs.  Many times I have found that simply being heard goes a long way toward building long-lasting relationships.

Conclusion

As ILTA’s Law 2020 initiative kicked off at the annual conference last month, we should all be thinking of ways in which we can build more effective relationships with clients and how the law firm of the future will continue to achieve sustainability.  Those of us who are lawyers have an opportunity to become counselors again, and in today’s marketplace, streamlining costs is just as important as minimizing risk.  Those of us who are e-discovery or litigation support practitioners have a unique opportunity to maximize our value and increase our revenue generation through consulting services.  Achieving maximum sustainability and reducing or eliminating client attrition begins with finding ways to build lasting relationships with clients by addressing their broader needs – beyond the matter at hand.  By becoming the trusted advisor in areas that span multiple practice groups, the law firm of the future can stop looking like a commodity and begin to look again like an indispensable resource.

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Learn More On Ediscovery Litigation.

In a prior post a few months ago, I wrote about the electronic discovery challenges that the duty to preserve electronically stored information (ESI) imposed on a cloud-based computing environment. Following that post, we will continue to examine another area that the Federal Rules of Civil Procedures (FRCP) requires with respect to document production. As stated, the FRCP Rule 34 (a) (1) offers guidelines on the duty to:

“…produce and permit the requesting party or its representative to inspect, copy, test, or sample the following items in the responding party’s possession, custody, or control.”

The key phrase “possession, custody or control” is something to be examined more closely in the context of Cloud Computing environments, where typically the cloud customer is the party in control and the cloud service provider is the party in possession and custody. In cases where the cloud customer is the party in litigation, it is natural to serve pre-trial a discovery request under Rule 26 (b) to the cloud customer and expect that since they are the party in control, and can therefore instruct the cloud provider to perform at least some form of collections. Now the question that remains is whether the same request can be made of the cloud provider, since they are the party in possession and/or custody. It is evident that requesting the cloud provider to perform a discovery request on behalf of their customers is impractical since any assertion of privilege or confidentiality would require the cloud customer to be involved in the discovery request. Besides, the cloud provider producing documents without consent from the customer of the cloud would run afoul of the Stored Communications Act (SCA). For these reasons, the broader three-pronged test of “possession, custody or control” embodied in Rule 34 (a)(1) should be revised to mean only “party in control”.

This view is supported in the seminal decision on Flagg v. City of Detroit, Slip Copy, 2008 WL 787061 (E.D.Mich.) . A great analysis of this case by Timothy Ackermann is available in The Federal Lawyer, November/December 2009 article, titled Consent and Discovery under the Stored Communications Act . As stated, when it comes to the application of “possession, custody or control”, the most significant test for cloud based deployments is “control”. For the cloud customer, “possession and custody” are not relevant, because in a strict sense, it is the cloud provider that can claim possession and custody. However, the cloud customer is clearly in “control” of the data, as evidenced by pretty much every service contract that gives the customer “the legal right to obtain the documents on demand”. Also, the cloud customer has the right to give “consent” to the cloud service provider to make the documents available. Thus, a cloud customer cannot claim that since they did not have “possession or custody”, the e-discovery obligations cannot be waived.

From the cloud provider’s perspective, the mere fact they have “possession or custody” does not require them to produce documents, unless the cloud customer gives lawful consent per the Stored Communications Act. Yet again, for the application of FRCP electronic discovery34(a)(1) , we find that the party in control over the data is the one that determines discoverability of data in the cloud. In contrast, the third party that is merely in possession or custody is not required to produce responsive ESI, given the provisions of the SCA. As noted in Flagg v. City of Detroit, the district court did not find the need to consider the issue of having a subpoena issued to the cloud provider (SkyTel Communications), since the required evidence was more easily acquired by an e-discovery request to the cloud customer (City of Detroit). A similar argument is made in the Crispin v. Audigier Inc., a case involving postings on familiar social networking sites, Facebook and MySpace. Here, District Judge Margaret M. Morrow goes to great lengths explaining why the provider is not required to produce documents based on protections offered by the SCA.

In summary, the nature of cloud deployments and their usage redefines the scope of ESI to those that the customer has control. Regardless of the interpretation of Rule 34, common sense dictates that the cloud provider and cloud user cooperate when it comes to e-discovery requests. Of course, one of the challenges with cloud deployments is the SCA and its interpretation for cloud-resident ESI. This will be the subject of my next post.

Learn More Litigation Software & Electronic Discovery Litigation