e-discovery 2.0

The bashing of our judicial system seems to have reached a fevered pitch.  Groups like the American College of Trial Lawyers (“ACTL”) have proclaimed in a recent report that while the “civil justice system is not broken, it is in serious need of repair.”  The blame game seems to have judges and attorneys alike pointing fingers.  The Fellows of the ACTL (perhaps not surprisingly) seems to pin some of the blame on the judiciary:

“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.”

Groups like the Sedona Conference chalk up many of the ills to the failure to cooperate, so much so that they’ve orchestrated a cooperation proclamation – which has picked up enough support by the bench to have garnered several cites in the case law (see e.g., Mancia).

The bench for its part seems to put some of the onus on litigators and their reticence to get with the times.  William A. Gross. Constr. Assocs., Inc. v. Am. Mfrs. Mut. Ins. Co., 2009 WL 724954 (S.D.N.Y. Mar. 19, 2009) is the latest example of such a proclamation.  In this construction defect case, Judge Peck (a Sedona devotee) issues what he hopes will be a “wake-up” call to the bar about the need for “careful thought, quality control, testing, and cooperation with opposing counsel in designing search terms or ‘keywords’ to be used to produce emails or other electronically stored information (‘ESI’).”  In Gross, the court had to mediate an e-discovery dispute where the requesting party propounded a blatantly over-inclusive search request crafted by the requesting parties.  Unfortunately, the responding entity was a non-party and they simply dig their heads in the sand.  In order to facilitate a resolution this left the Court in the “uncomfortable position” of having to craft a “keyword search methodology for the parties, without adequate information from the parties (and Hill).”

Judge Peck’s exasperation with these antics was palpable.  Summing up the problem by citing Judge Grimm and Victor Stanley he stated: “This case is just the latest example of lawyers designing keyword searches in the dark, by the seat of the pants, without adequate (indeed, here, apparently without any) discussion with those who wrote the emails.”  He further noted: “[w]hile this message has appeared in several cases from outside this Circuit, it appears that the message has not reached many members of our Bar.”

After noting both Sedona and Judge Facciola (of O’Keefe and Equity Analytics fame) Peck’s opinion reached a crescendo:

“Electronic discovery requires cooperation between opposing counsel and transparency in all aspects of preservation and production of ESI. Moreover, where counsel are using keyword searches for retrieval of ESI, they at a minimum must carefully craft the appropriate keywords, with input from the ESI’s custodians as to the words and abbreviations they use, and the proposed methodology must be quality control tested to assure accuracy in retrieval and elimination of ‘false positives.’ It is time that the Bar-even those lawyers who did not come of age in the computer era-understand this.”

While it’s easy to see who Peck blames in this brouhaha, it takes (at least) two to tango.  Meaning that litigants on both sides of the “v” must move beyond the typical “seat of the pants” electronic discovery wrangling.  And, judges need to be savvy enough to spot the issues to help/force the parties into such an enlightened/cooperative state.  Nothing short will get the job done.

A couple of weeks back, I attended a now-infamous meeting at Sequoia Capital, which has since been widely covered in the press and the blogosphere. For those unfamiliar with Sequoia, it is the world’s leading venture capital firm, with a string of early-stage investments in companies such as Apple, Cisco, and Google as well as, more recently, AdMob, Clearwell, and Loopt. The presentation says it more colorfully, but Sequoia’s point is simple: “We are at the beginning of a global economic slowdown that could last for years, and the cost of capital has sky-rocketed. In light of that, everyone needs to re-evaluate their growth plans and, if necessary, reduce expenses immediately.”

That message sent a chill through Silicon Valley. In the days that followed the meeting, several start-up companies announced layoffs, closely followed by larger companies like eBay and Yahoo, all citing economic conditions in the wake of the financial crisis. So naturally, the meeting and its aftermath got me thinking about what impact our current economic malaise will have upon the e-discovery industry.

If history is any guide, economic downturns lead to more litigation, and more litigation leads to more e-discovery. That’s why e-discovery has often proven to be a counter-cyclical business, and that certainly appears to be the case again now. While traditional technology companies like SAP and Seagate missed their numbers last quarter, the top e-discovery software companies posted strong results. And many lawyers are expecting even better times ahead, if last week’s ACC show or the recent Fulbright & Jaworski 2008 Litigation Trends Survey are any indicator. In particular, the survey results were quite striking, with more than one-third of companies surveyed predicting more lawsuits, and a quarter forecasting more regulatory inquiries. This makes sense in light of the fact that what we are facing is no “normal” recession; rather, it’s a downturn triggered by the sudden and widespread collapse of the banking sector which has left many people wanting legal redress for their grievances.

But, more important than any short-term increase in litigation, I think the real significance of the current crisis is that it will spur a sustained, long-term increase in demand for e-discovery solutions. As revenue growth slows, companies will focus on reducing costs to maintain profit growth. That will prompt many of them to examine the vast amounts of money being spent on e-discovery and accelerate the pace at which they use technology to cut costs by bringing elements of e-discovery in-house. Law firms and litigation support service providers will similarly find their invoices attract greater scrutiny. Their old ways of taking terabytes of data and dumping it into a linear review platform without first removing irrelevant or unresponsive data, will look increasingly profligate.

To learn more about how best to prepare for the coming wave of litigation, and associated increase in e-discovery, I strongly recommend next week’s webinar with Ron Best from Munger, Tolles, and Olson (MTO). Ron is a real innovator in this area, with extensive experience dealing with multi-party, complex litigation. He is also full of practical advice about how best to reign in e-discovery costs and manage with limited resources – skills that will be increasingly important in the coming months.

No industry is an island and, to some extent, we all get impacted by the same economic forces. But the unique thing about the e-discovery industry is that the worst of times can often be the best of times. Consider it a silver lining to the very large cloud hanging over our economy.

I was in Seattle this week for the annual Association of Corporate Counsel conference.  And, from all external perspectives it seems like the dour economic climate hasn’t dampened the spirits of the legal and litigation support communities.  There were lavish parties, including an extravaganza thrown by Womble, Carlysle at the Space Needle, along with no shortage of the usual tchochkies, giveaways and over-the-top promotions – even though the general consensus from exhibitors was that actual attendance was down from last year.

Maybe the legal community is in denial.  Or perhaps, the sentiment instead is that tough economic times will result in more litigation and governmental regulation.  While this is certainly the optimistic viewpoint, the recent Fulbright & Jaworski Litigation Trends Survey at least provides some foundation for this rosy notion.

In Fulbright & Jaworski’s fifth annual survey, corporate counsel stated that they anticipate a litigation spike next year in both lawsuits and regulatory proceedings.  Among U.S. respondents to the most recent survey, 34 percent expect an increase in lawsuits involving their company and 25 percent anticipate more regulatory proceedings.

Speaking on behalf of the glass half full contingent, Stephen C. Dillard, who chairs Fullbright’s global litigation practice, believes that the survey results illustrate the shift from a long period of prosperity to the start of “a period of serious economic challenge that is likely to fuel litigation over who is to blame and who should pay for the consequences.”

Whether this prediction comes to pass remains to be seen, but at least the participants at the ACC conference seem to drinking the same Kool-Aid.  Whether that sugary drink is actually good for you or not, will be the question.

Let me know what you think.  Do you think the financial crisis will force litigation to increase, decrease, or stay the same and why?