e-discovery 2.0

The Chinese philosopher, Lao-tzu, once said “a journey of a thousand miles begins with a single step.”  This truism has been applied in a myriad of ways over the years, but it applies with equal measure to the process of taming the multifaceted challenge that is electronic discovery.  Simply put, conquering e-discovery is always a journey.  And for enterprises like The Home Depot, they know first hand that you can’t simply look at the end result and wish for the journey to be complete.  Instead, it’s paramount to embrace all the steps along the path and develop good habits that work both for the first and the last mile.

Many enterprises clearly understand the benefits of in-house discovery that include lower processing and review costs, earlier access to case facts, better control over the processes, etc.  But some struggle with how to begin their journey, for any number of reasons (lack of knowledgeable staff, failure to get executive buy-in, inability to build a compelling business case, etc.).  Fortunately, the folks at Home Depot have recently completed their journey and have offered to share secrets they leveraged throughout the process.

In a similar fashion to best selling author’s Stephen R. Covey’s “The 7 Habits of Highly Effective People” David Steel, Sr. Counsel and Barbara Squires, Paralegal at The Home Depot will host a web seminar to walk us through the some of the e-discovery habits that helped them successfully navigate their way through the process.  The web seminar is titled “5 Habits to Create a Highly Effective In-House E-Discovery Process” and it’s free to attend. Since we don’t want to steal their thunder, we won’t divulge their habits now, but suffice it to say that every company can learn from their experiences.  And, after the web seminar I’ll devote more blog time to further expansion of each habit.

Since it’s our raison d’être to help companies complete their e-discovery journey, we’re excited to have The Home Depot on to share stories from their journey, all in the hope that others, just embarking on their own expedition, can be just as successful.

August just wouldn’t be August without lazy days at the beach spent playing in the sand, frolicking in the surf, and immersing yourself in the LTN executive summary of the latest Socha-Gelbmann Electronic Discovery report (in this case, the hot-off-the-presses 2010 edition).

Even with the lure of the big waves beckoning you out into the water, if you follow electronic discovery you likely have a hard time pulling yourself away from the report, and this year is no exception. In fact, this year’s report is especially insightful, as George and Tom seem to have done a particularly impressive job of getting the pulse of not just what’s going on in the law firm and service provider parts of the market, but the enterprise as well.

This is a big change from just a couple of years ago. Go back and review the executive summary from 2008, and you’ll notice a very different feel to the findings. In 2008, much of the talk was around the dynamics of the service provider market, with relatively little discussion of trends related to the e-discovery process and technological innovation in the space. In 2008, it felt like e-discovery was something you had other people do for you: the word “consumer” appeared 12 times in the executive summary. In 2010, two short years later? Just five times. Why? The language may be telling. “Cost” appeared seven times in the 2008 report. In the 2010 report? 16… more than twice as often.

What seems to have happened is that the recession has been something of a refining fire for the electronic discovery market. In order to reduce costs and manage risks, enterprises are behaving much less like consumers and more like real customers with skin (and money) in the game. Not surprisingly, they’ve gotten extremely aggressive about bringing  innovative cost-containing measures to bear on the process. Socha and Gelbmann highlight three:

• More targeted preservation and collection of ESI
• More focused review and analysis of the data
• More effective use of technology to speed up the efforts, improve quality, and reduce costs

This is great news for innovative software companies in the e-discovery space — and their customers. What one would expect to occur in a maturing market is that it would move from a period of rapid innovation to a lower-innovation, consolidation phase. However, that’s not the case here. While there is consolidation occurring,  what’s remarkable about e-discovery right now isn’t really all the acquisition press releases in your twitter feed (mainly from vendors saddled with prior-generation point solutions who are trying to acquire their way toward a complete offering). Rather, it’s how leading enterprises are increasingly seeking, and finding, cutting-edge solutions to solve cost, efficiency, and risk management problems associated with e-discovery that simply weren’t available prior to the meltdown.

As in-house legal and IT e-discovery spending starts to gain steam, look for enterprises purchasing in-house solutions to demand many of the innovations that have been developed over the last couple of years (most of which are highlighted by the Socha-Gelbmann survey):

• Targeted collection: Products better able to strategically target the collection of ESI, rather than attempting to boil the ocean, are more suited to the mindset and approach of cost-conscious enterprises
• Iterative discovery: Products that are able to provide “to the left” functionality while still providing enterprise-class, intuitive processing, analysis, review, and production functionality
• Support for small and big cases: In discussing “small is the new big”, Socha and Gelbmann highlight how “the aggregate of small cases dwarfs the combined large cases.” Successful products must simultaneously handle high numbers of smaller cases while still scaling to the largest matters
• Integrated analytics: Products must bring to bear powerful analytics across all stages of the e-discovery process, focused not just on document review, but also looking at aggregates of data from many different angles and allowing you to see the big picture across the entire case for effective information and cost management

Is the EDD space maturing? Yes, as Socha and Gelbmann rightfully point out. But it’s doing so in surprising, innovative ways that, when it’s all over, may well prove to be a silver lining to the cloud of challenges the industry has faced over the last two years.

On April 1^st, we had some fun by revealing the magical properties of “Clearwell for the iPad.” In truth though, we were only half joking because, at the time, we actually had an application for the iPhone and the iPad in development.

As Clearwell’s user base grew, and we became a mission-critical application to so many people, we learned that our users want access to the product from anywhere, not just when at their desks. In particular, for Clearwell administrators, it’s a lot more convenient logging into cases or checking the status of processing on an iPhone than it is being tied to a computer. So we created this companion application for the iPhone and iPad so they could do just that, as well as view job details, email logs, and generally manage their Clearwell appliances while on the go.

The driving force behind this new application, which we call “iClearwell”, is one of our developers, Gim, who drove its development. Gim also created a video to explain exactly what iClearwell does, which you can see below (yes, it really is his voice – and his pulsating finger).

iClearwell is available for free at Apple’s App Store. I have it on my iPad, and it rocks!

Much of the business and personal productivity that comes in the digital world  is from email and its unique abilities. Email allows us to communicate in a way that helps us associate context to our discussions, namely in its ability to be chained into a sequential thread when email users reply to or forward emails they previously received. This accomplishes two important tasks: 1) it allows the person sending the reply or forward to get an understanding of the issues so he/she can craft a meaningful response, and 2) it allows the person receiving the response to understand that response in the context of other on-going discussions. Email programs such as Microsoft Outlook, Eudora, and Gmail help by automatically including content from prior emails, thus producing a long chain of reference.

It is no coincidence that emails thus constitute key evidentiary value in the context of litigation. The inherent value captured in emails is what makes email productions central to pre-trial disclosures and the electronic discovery that precedes it. Courts have long recognized that emails are a business record and subject to discovery. Establishing who said what in the context of a matter in dispute is greatly facilitated by examining the thread of emails recorded in email repositories. With respect to electronic discovery, however, email threading presents several unique challenges. The area of greatest confusion and uncertainty has been the determination of privilege when emails are exchanged with in-house counsel and attorneys and whether such emails are protected by attorney-client privilege or not. A central issue is the composition of privilege logs under these circumstances.

There are several legal opinions on the matter of intermingling privileged and non-privileged communications in an email chain. These opinions have left the matter with little clarity, especially regarding whether the entire email thread is privileged or whether individual emails must be separated out and classified as privileged, with a privilege log listing them. Typically, the most recent email in a thread contains all other emails in that thread. Separating out individual emails (i.e., the contained emails) from the containing email would allow for treatment of just the portions of the email thread that may have privilege. When such separation is permitted, some contained emails may be assessed as privileged while others may not. However, it is entirely possible that the contained email is also present as an independent email under possession of the same custodian or another custodian. When it is present, one could argue that the contained email can just be ignored, and if the corresponding email is responsive, one can ignore the contained email. But rarely does a collection include a complete set of custodians, so the question of whether the privilege log should include the contained item in question still remains. In terms of management of review, and for constructing a privilege log, treating the most recent email and all its contained emails as a single entity is less expensive and cleaner than separating and determining privilege status of each contained email.

Another complicating factor is simply a determination of privilege. Does the mere fact that an attorney was listed as a courtesy CC recipient make the entire email privileged? And, when such emails are then forwarded only to an attorney involved in the case, with a legal strategy discussed in the containing email, is only the new content added to the containing email privileged, or does the privilege determination extend to the other contained emails?  Let’s examine a few opinions for guidance.

With respect to privilege there is a significant body of opinions that would suggest that only communications that explicitly seek legal advice are privileged.

“With respect to internal communications involving in-house counsel, a party “must make a ‘clear showing’ that the ‘speaker’ made the communications for the express purpose of obtaining or providing legal advice”, Chevron Texaco Corp., 241 F. supp 2d) at 1076 (quoting In Re Sealed Case, 737 F.2d 94 (D.C. Cir. 1984)). If the legal and business advice are inextricably intertwined, “the legal advice must predominate over the business advice, and not be merely incidental, for the communications to be protected under attorney client privilege.” Evidently, attempts to include an incidental attorney in a thread would not offer privilege protections. However, the issue is complicated if the most recent containing email is indeed a genuine attempt to seek such guidance. Here again, there are two opinions. In United States v. Chevron Texaco Corp., 241 F. supp. 2d 1065, 1074 n.6 (N.D. Cal. 2002), we note that:

“With respect to each series of emails for which Chevron asserts protection under privilege, Chevron breaks the series into each discrete message. In our view, such a representation of the document is misleading. Each email/communication consists of the text of the sender’s message as well as all of the prior emails attached to it. Therefore, Chevron’s assertion that each separate email stands as an independent communication is inaccurate.”The above would have you prepare a single entity with the most recent containing email and all other quoted emails treated as a single unit. On the other hand, we see the opposite opinion in Universal Service Fund Telephone Billing Practices Litigation, 232 F.R.D. 669, 674 (D. Kan. 2005) where “the court strongly encourages counsel, in the preparation of future privilege logs, to list each email within a strand as a separate entry”. In a related ruling, the court notes: “Obviously, a sufficient (i.e., reasonably detailed) privilege log is vital if litigants and judges are to determine whether documents have been properly withheld from discovery.” As mentioned earlier, this can be much more expensive from a review and production standpoint.

In Chemtech Royalty Assoc., L.P. v. United States, Nos. 05-cv-00944, 06-cv-00258, 07-cv-00405, at (M.D. La. Mar. 30, 2009), we get another perspective: “Asserting privilege for an entire email thread in the privilege log, but only describing the last message in the thread is deficient.”

In Baxter Healthcare Corp. v. Fresenius Med. Care Holding, Inc., No. 07-cv-01359, 2008 BL 229777 at (N.D. Cal. Oct 10, 2008), the defendants are ordered to produce a privilege log that “separately identifies the author, recipient(s), copyee(s), and blind carbon copyee(s) for each logged email communication regardless of whether the communication is part of an email string”. The court directive is: “Each email is a separate communication, for which a privilege may or may not be applicable. Defendants cannot justify aggregating authors and recipients for all emails in a string and then claiming privilege for the aggregated emails.”

Thus, the contained emails must be treated as separate privilege log entries.

In Vioxx Products Liability Litigation, 501 F. Supp. 2d 789, 812 (E.D. La 2007) the court notes:

“Email threads in which attorneys are ultimately involved were usually listed on the privilege log as one message.”  Further, “Simply because technology has made it possible to physically link these separate communications (which in the past would have been separate memoranda) does not justify treating them as one communication and denying party a fair opportunity to evaluate privilege claims raised by the producing party.”

Again, the preference has been to separate out individual contained emails as independent emails with corresponding privilege log.

In C.T.  v.  Liberal School District, Nos. 06-cv-02093, 06-cv-02360, 06-cv-02359, 2007 BL 21826 at (D. Kan. May 24, 2007), the court orders the plaintiff to submit an amended privilege log that listed email in a string as a separate entry.

In Se. Pa. Transport Authority v. Caremark PCS Health, L.P., 254 F.R.D., 253, 264-65 (E.D., Pa 2008) court recommends “analyzing emails in chain separately to rule on defendant’s privilege claims”.

Another significant opinion is found in Muro v. Target Corp., 250 F.R.D. 350 (N.D. Ill. 2007). In addition to at least four motions, an in camera review  was requested for identifying the privilege status of eighty nine documents. Here, the court ruled that FRCP Rule 26(b)(5)(A)  does not require that all contained emails be separated out. However, the court sustains Target’s objection to the Magistrate Judge’s ruling that its privilege log was inadequate for failure to separately itemize each individual email quoted in an email string. In Muro, though, you are allowed to treat an entire email as a single entity only if the non-privileged communications in that chain are otherwise disclosed. Hence, if you wish to treat an email as a single unit, you are required to either disclose the individual contained emails from other custodians, or to list them as Derived Emails (see below).

Another important case is the Rhoads Industries Inc. v. Building Materials Corp. of America et al 2008, WL 5082993 (E.D. Pa Nov. 26, 2008), where the court rendered the opposite opinion:

“Each version of an email string (i.e., a forward or reply of a previous email message) must be considered a separate, unique document, and therefore each message of the string which is privileged must be separately logged in order to claim privilege in that particular document.”

Of course, the context of the Rhoades opinion is the statement: “In the world of electronic communications, a series of email messages, among people employed by the client, but working in different locations, can replace the meeting with an attorney and subsequent letter.” However, this opinion is very debatable.

An entirely different approach is suggested in Apsley v. Boeing Co., No. 05-cv-01368, 2008 BL 12035 at (D. Kan. Jan 22, 2008), with the opinion “Although Boeing listed on its privilege log entire email strings, it redacted only the portion of the string that contained legal communications.” While this seems to be a perfectly reasonable approach, wouldn’t this compromise case strategy since the very fact that certain portions of the non-privileged, unredacted emails were being exchanged with in-house counsel and is therefore part of an attorney communication can be damaging?

Suffice it to say, the courts differ in their opinions on how to handle email threads and their privileged logs. It is in this context that the Clearwell E-Discovery Platform’s treatment of email threads is extremely helpful for preparing your litigation response. In fact, Clearwell has received two patents related to email threading, one for constructing email threads and its ranking and another for determining derived emails from other containing emails and de-duplication in the context of original emails. Clearwell has advanced email meta-data and content analytics to piece together all emails of a thread. Furthermore, its Derived Email feature separates out contained emails as complete emails, which are then de-duplicated against other emails that are not derived from a contained email. In situations where such a duplicate is not identified, the derived email is maintained in a special state. Also, the containing email’s thread is separated out in such a way that each individual email’s privilege status can be determined. One can apply either a single- or multiple-record policy satisfying whatever the prevailing opinion is from the bench. Also, Clearwell’s redaction capabilities and its ability to produce the same set of documents for multiple parties allow the case team to provide a quick turnaround if there is a motion to produce either a privilege log or the non-privileged snippets of emails. Such technology can be a lifesaver when it comes to meeting electronic discovery obligations.

Yesterday, Marsh & McLennan (M&M) announced the sale of Kroll, its investigative services division which last year generated $678 million in revenue. Kroll is being acquired by Altegrity, another investigative services company which is owned by Providence Equity. The acquisition price is $1.13 billion, below the $1.3 billion M&M was rumored to be asking, and the deal is financed by Apollo Investment Services and Goldman Sachs.

There are many aspects to this transaction, but I want to focus on just one: what does this mean for Kroll Ontrack, Kroll’s largest division with $250 million in revenue and a staggering 1,500 employees, making it by far the world’s largest e-discovery service provider?

To answer this question, I will first outline the strategic challenge facing Kroll Ontrack, before outlining two alternative strategies its new owners may adopt for addressing it.

Strategic Challenge: Kroll Ontrack Is The “Yahoo! Of E-Discovery”

Just as Yahoo was an internet pioneer in the 1990s, Kroll Ontrack was the pioneer of electronic discovery services. Like all pioneers, as the first to market, Kroll had to build everything itself. So Kroll Ontrack invested not only in recruiting and training its staff of skilled consultants, the company also developed its own suite of e-discovery tools and software. It offered this integrated package of services and software to the market and, justifiably, charged a price premium.

But as the industry matured, it disaggregated with more savvy customers and new companies focused on specific parts of the value chain. Customers became better educated and more confident making decisions, diminishing the value of Kroll’s “we-are-the-safe-choice” value proposition. These customers today have many more options for e-discovery than was the case in years gone by, primarily because of a generation of e-discovery software companies, such as Clearwell, Guidance, Exterro, and kCura/Relativity, which offer capabilities like collection, ECA (Early Case Assessment), litigation hold management, and linear review. These have been widely adopted by Kroll Ontrack’s competitors, negating Kroll’s technological advantage. Even worse, because Kroll Ontrack’s competitors do not need to invest in R&D, they have a substantially lower cost structure. As a result, they have undercut Kroll Ontrack on price, which has halted its growth and squeezed its margins.

In a directly analogous way, Yahoo! has seen its broad internet service to consumers eroded by a host of more focused competitors such as Google, Facebook, and Skype. Consumers today are much more familiar with the internet, and feel comfortable making separate choices for search, social networking, and messaging, without the need for an umbrella brand. That has left Yahoo! without a reason for being: even today, its CEO struggles to answer the fundamental question “what is Yahoo!?”

Solution: Sell It Or Fix It

As Kroll Ontrack’s new owner, Altegrity has a simple choice. It could sell Kroll Ontrack, making the strategic challenge someone else’s problem; or Altegrity could fix it, by adopting a fundamentally different strategy.

Let’s consider each in turn:

Sell It: Most sensible people would find it funny to think about selling something right after you bought it. But in this case, it could make a lot of sense. Altegrity is a leading provider of investigative services, not e-discovery, making the “non-Ontrack” part of Kroll’s business a much better fit. So why not sell Kroll Ontrack, pay down debt, and focus on the services business which it understands? This would be especially attractive if, as Vivian Tero at IDC suggests, there are willing buyers such as ECM or storage software companies which like Kroll Ontrack but do not want the services business.

Fix It: Mike Cherkasky, Altegrity’s CEO, is a former head of Kroll, and so is perhaps uniquely well placed to bring about a change in direction. To do so, he must decide what Kroll Ontrack wants to be. If its goal is to be the leading e-discovery service provider, then it should kill its internal software development efforts and focus on providing customers the absolute best service using industry leading tools. If it wants to be an e-discovery software company, which would be a much harder transition, then it needs to exit the services business and make its technology available every litigation support company.

Either way, it will take time and a lot of painful decisions for Kroll Ontrack to recover its momentum. But if any encouragement is needed, the Altegrity and the Kroll Ontrack teams need only look at what’s happening to Fios, another of the industry’s early pioneers. So far, Fios has refused to decide what it wants to be, abandoning its internal review platform for Relativity but keeping its proprietary processing software. The result? It’s had three different CEOs in the past 12 months, and competitors continue to steal market share.

Every car dealer knows he should focus customers on the monthly payment, not the total cost of the car. Every credit card solicitation (or sub-prime mortgage, for that matter) starts with the offer of 0% interest, not the actual interest rate or fees the customer will pay after the first 6 months. The reason is simple: once you lease the car or put a balance on the credit card, it’s very hard to switch away when – as often happens – you find yourself paying much more than you should later on.

I was reminded of these examples when reading about Kroll Ontrack’s offer of “free ECA” and Stratify’s recent press release announcing “free early stage filtering” for electronic discovery. Taking each in turn:

Kroll Ontrack Advanceview

Based on feedback from several customers in Washington DC, New York, and the Mid-West, Kroll Ontrack often provides Advanceview at no charge. That means customers can get “custodian de-duplication” and “1 keyword and date filter pass” for free, although Kroll still charges $200-250/hour for doing the work. The resulting data set is then processed and loaded into its review platform for $1,500-$1,800 per gigabyte.

Is this a good deal? For the vast majority of customers, the answer is “no” for three reasons.

First, customers typically end up paying more than they would using alternative products. For example, in the chart below, we compare the cost of using Kroll Ontrack to that of Clearwell for a 100 gigabyte project. In both cases, we assume customers are doing de-duplication, filtering, keyword searching, first pass review, and load file creation. As with any comparison of this sort, you have to make some simplifying assumptions. For example, we excluded data hosting fees and professional services fees from the analysis.

Whether customers are better off with Kroll depends entirely on how much data is culled out for free before customers incur the high, back-end charges. Given that all Kroll is doing for free is custodian de-duplication and running one set of keywords and date filters, the typical cull rate is likely be anywhere from 20% to 50% — nowhere near the 80% cull rate required for Kroll to be more cost effective than Clearwell.

The second reason why this is not a good deal is that it gives customers no certainty about costs. Culling rates from de-duplication and blind keyword searches are unpredictable and vary widely, meaning that some projects will cost more than expected while others will cost less. But every project has budget that’s determined up front and, as any litigation support manager will tell you, you get much less credit for being under budget than you get pain for going over budget. That’s why cost certainty is one of the leading requests from anyone involved in electronic discovery.

Finally, excluding data based on a single round of keyword searches and date filters is not in line with The Sedona Conference best practices. Rather, Sedona recommends that customers iterate their keywords and culling strategies to hone them appropriately.

Iron Mountain Stratify OnPoint

It is not yet possible to do the same detailed analysis on Stratify’s OnPoint which offers “free early stage filtering”, because it’s impossible to tell exactly what that means. In its artfully-worded press release and data sheet, Stratify promises to provide “free processing and loading of unlimited data for early stage filtering”. Does that include de-duplication? Does that include any keyword searching? My guess is “no”, in which case all they are really doing for free is offering to load data into their review platform so that they can then charge you – not a very compelling offer. But if anyone does know the answer to these questions, or if Stratify would like to clarify exactly what’s being offered for free, then please let me know and I’ll post an update.

Once data is in Stratify’s system, it charges a “one-time fee starting at $500 per gigabyte” for “reviewable data”. But it does not say if that’s the only fee. What about monthly hosting charges? Fees for additional reviewers? Again, it’s not yet clear what the downstream cost of review really is using Stratify, so it’s impossible to know whether this is a good deal.

If there’s one lesson from all of this, it’s “buyer beware”. Just as when you buy a car, sign up for a credit card, or click on that offer to get more corn on Farmville, you need to look beyond the “free offer” and understand what it’s really going to cost you.

Jason R. Baron was a keynote speaker at a recent electronic discovery summit and he mentioned an electronic data discovery topic that “ought to be blogged about.”  So, with that kind of softball I had to take a swing, particularly because it’s been a topic we (at e-discovery 2.0) have been discussing lately.

The genesis of this blog (per Jason) is the recent “skepticism” evidenced by the bench regarding the defensibility of custodian based collections.  ARMA has a good piece on this very topic, entitled “Is ‘Manual’ Collection of ESI Defensible?”  The core notion is that the tried and true practice of custodian based ESI collection is now under fire by courts, which appear to be looking at this practice with an increasing level of distrust.

“While it is common for companies to use automated data-collection software and hardware, some corporate litigants opt for more informal, “manual” collection methods (i.e., searches performed by individual records custodians) when responding to ESI requests. Companies may choose the manual collection of ESI to reduce costs, particularly if they have limited levels of litigation or lower risk levels posed by the litigation itself.”

While there’s no dispute that the “automated” collection methods available in litigation software referenced above have a number of features that make this approach more efficient, the question is whether a “manual” (i.e., custodian based) collection process is somehow less defensible.  If this is truly the case, then many midsized companies without the budget to purchase such e-discovery applications will inherently be found deficient – which is a daunting notion.

Take the recent case of Ford Motor Co. v. Edgewood Properties Inc., 257 F.R.D. 418 (D.N.J. 2009) where the dispute arose out of the demolition of a Ford assembly plant in New Jersey.  Ford and Edgewood entered into a contract whereby Ford agreed to provide 50,000 cubic yards of concrete to Edgewood in exchange for Edgewood removing it from the site.  When the concrete turned out to be contaminated, the dispute started in earnest.

The crux of Edgewood’s complaint was that it was unhappy with Ford’s production and somehow suspected that the dearth of documents was due to the electronic data collection process.  Edgewood sought to “’confirm the adequacy of Ford’s manual document collection process’ by using a third-party vendor to perform keyword searches on documents not in the existing repository of ESI, but instead, documents within the possession of certain Ford custodians.”

To reconcile the dispute the court looked to the Sedona Conference’s work in the area:

“In The Sedona Conference Best Practices Commentary on the Use of Search and Information Retrieval Methods in E-Discovery, Practice Point 1 states that “[i]n many settings involving electronically stored information, reliance solely on a manual search process for the purpose of finding responsive documents may be infeasible or unwarranted. In such cases, the use of automated search methods should be viewed as reasonable, valuable, and even necessary.”(emphasis added). Once again, the Court confronts this peculiar situation insofar as Edgewood has a point that the document collection method used by Ford is not necessarily contemplated under the Sedona Principles, but that agreement by the parties at the outset as to the mode of collection would have been the proper and efficacious course of action.  However, “[a]bsen[t] agreement, a [responding] party has the presumption, under Sedona Principle 6, that it is in the best position to choose an appropriate method of searching and culling data.”

Accordingly, the court found that the lack of agreement coupled with Ford being in the best position to make a call about the methodology, was a deciding factor in generally upholding Ford’s manual collection process.

“It would be improvident at this juncture to grant Edgewood the relief it seeks when it has not shown any indicia of bad faith on the part of Ford. To countenance such a holding would unreasonably put the shoe on the other foot and require a producing party to go to herculean and costly lengths (especially in a document-heavy case such as this) in the face of mere accusation to rebut a claim of withholding. This scenario is not contemplated by the Federal Rules.”

While Ford wasn’t penalized for its manual collection, this practice has come under fire in several other opinions.  In the highly controversial case of Phillip M. Adams & Assoc., LLC v. Dell, Inc., 621 F. Supp. 2d 1173 (D. Utah 2009) custodian based collection/preservation policies were similarly under fire.

“ASUS’ practices invite the abuse of rights of others, because the practices tend toward loss of data. The practices place operations-level employees in the position of deciding what information is relevant to the enterprise and its data retention needs. ASUS alone bears responsibility for the absence of evidence it would be expected to possess. While Adams has not shown ASUS mounted a destructive effort aimed at evidence affecting Adams or at evidence of ASUS’ wrongful use of intellectual property, it is clear that ASUS’ lack of a retention policy and irresponsible data retention practices are responsible for the loss of significant data.”

Adams was in fact cited by Judge Scheindlin in her latest opus – Pension Comm. of the Univ. of Montreal Pension Plan v. Banc of America Sec. LLC, No. 05 Civ. 9016, 2010 U.S. Dist. Lexis 4546, at *1 (S.D.N.Y. Jan. 15, 2010), where she found fault with the Plaintiff’s reliance on manual collections:

“This instruction does not meet the standard for a litigation hold. It does not direct employees to preserve all relevant records–both paper and electronic-nor does it create a mechanism for collecting the preserved records so that they can be searched by someone other than the employee.  Rather, the directive places total reliance on the employee to search and select what that employee believed to be responsive records without any supervision from Counsel.

From the foregoing, it’s probably too early to call the skepticism over manual collection a trend per se.  Certainly, lobbing a preservation notice over the proverbial wall to custodians without the requisite level of supervision is a recipe for disaster.  Education (about the matter and the required tasks), compliance (with the preservation instructions) and ongoing monitoring (to ensure that compliance continues over time) are all critical responsibilities that must be thoughtfully undertaken by counsel for a defensible ediscovery process.

The question then becomes, is the problem here really about the “manual” collection efforts by the custodians or more simply the fact that they aren’t supervised with the requisite degree of care?  If this is the case, which I’d opine that it is, then “properly executed” manual collections should be fine (i.e., defensible).

But, as Ford indicates, if your company is going to rely upon a manual collection modus operandi, then it may be advisable to let the opposition in on the use of this tactic.  This approach may be mandated by local rule or it may just be the type of transparent cooperation that’s all the rage these days.

The New York state court looked in the mirror recently and they didn’t like what they saw.  While it’s hard to imagine the self-dubbed “center of the universe” finding flaws with anything… apparently e-discovery has caused the big apple to take serious stock of the situation.  In a report entitled ELECTRONIC DISCOVERY in the NEW YORK STATE COURTS, Chief Judge Jonathan Lippman and Chief Administrative Judge Ann Pfau do an excellent job laying out the nature of the problem in a 24 page report.  Their initial findings in many ways mirror those of the American College of Trial Lawyers Task Force on Discovery (”Task Force”) and their survey of the Fellows of the American College of Trial Lawyers (”ACTL”).

“Electronic discovery (“e-discovery”) has for some time been changing the face of modern litigation. It is a major, if not the predominant, factor behind rising litigation costs and delays and presents serious challenges to the court system’s ability to resolve disputes ranging from commercial matters to personal injury cases, in an efficient, cost-effective manner.”

Fortunately, the Report recognizes the ubiquity of the vexing e-discovery challenges.

“[T]he volume of electronically stored information (“ESI”) has increased exponentially over the last decade, along with the amount of ESI potentially relevant to legal disputes. But while it is inexpensive to store immense quantities of ESI, it can be extremely expensive in the context of litigation to identify, preserve, and collect potentially relevant ESI and to have it reviewed for responsiveness and privilege by attorneys and paralegals prior to production to another party.”

But surprisingly, they’ve taken their shortcomings personally, and the seriousness apparently threatens New York’s standing in the legal community.

“Interviews with leading judges, law clerks, and practicing lawyers from around the state strongly suggest that the New York court system’s standing as a leading forum of both national and international litigation is at stake. … Those same parties and lawyers appear to be turning away from New York State courts for the greater sense of certainty and ability to handle massive e-discovery disputes that the Federal courts, and to a lesser extent, other state courts with more developed e-discovery practices, can provide.”

The report founded upon “extensive research and interviews with experts in electronic discovery”, addresses the problems of electronic discovery, including cost and delay, and provides several recommendations on how “the courts can manage e-discovery in a more expert, efficient and cost-effective manner within the framework of existing law.”

1. Establish an E-Discovery Working Group

This proposed step is one of the more interesting since the goal is to create “a working group of e-discovery experts that would serve as a resource for the court system and support its efforts to improve the management of e-discovery.”  This Working Group would have a very expansive (perhaps too much so) roster:

• Judges, court attorneys, and court clerks drawn from both the Commercial Division and other courts around the state that handle electronic discovery issues (and perhaps one or more judges/court personnel with little or no e-discovery experience);
• Lawyers with extensive experience litigating cases involving large volumes of ESI;
• One or more CPLR Advisory Committee members with an electronic discovery background;
• Medical malpractice, matrimonial, criminal, mass tort, and employment law practitioners, because of the increasing frequency and importance of electronic discovery in these practice areas;
• General counsel familiar with the issues affecting corporate clients who are heavy-ESI producers, particularly in the financial services and health care industries;
• Forensic computer/e-discovery specialists who typically are hired for large electronic discovery productions, but can share their substantive technical knowledge and familiarity with the latest technological/forensic trends;
• A mix of newer and more experienced practitioners, including one or two more experienced practitioners with limited technical proficiency;
• Bar association representatives who have studied and issued reports on electronic discovery;
• Federal practitioners and/or federal magistrates to offer the federal courts’ perspective;
• An academic who has studied and written about electronic discovery;
• Representatives of the Advisory Group to the New York State and Federal Judicial Council, which works to promote awareness about differences and commonalities in law practice between the state and federal judiciaries;
• A member of The Sedona Conference®, a national group of jurists, lawyers, experts and academics considered to be at the cutting edge of electronic discovery issues;
• Representatives of the Attorney General’s and/or District Attorneys’ Offices who are familiar with how electronic discovery is affecting their caseloads.

Assuming they can put together this dream team, the next challenge (beyond finding times to meet) would be to harmonize all the differing perspective, which certainly won’t be easy.

2. Improve the Preliminary Conference

The Preliminary conference was roundly felt to have value, but there were both short term and long term recommendations for change.  In the near term, the Report concludes that new language should be added to Commercial Division Uniform Rule 1 and to Rule 202.12(c)(3) adding in a new language stating that:

“Counsel appearing at the PC should be sufficiently versed in matters relating to their client’s technological systems to competently discuss with the court and opposing counsel all issues relating to e-discovery. Counsel may, in appropriate cases, supplement their ability to address these issues at the PC by bringing a client representative or outside expert with such knowledge.”

Assuming the short term fixes don’t remediate things completely, the Report recommends two additional steps, each to be piloted.  First, one pilot project should require an Initial Disclosure (similar FRCP Procedure 26[a][1]) for all parties relating to electronic discovery issues, which would require the parties to detail the following, in advance of the PC:

• Who the party’s key IT people are;

• Whether, and to what extent, the party has implemented preservation measures to avoid spoliation of the information relevant to this case;

• Which substantive witnesses the party is likely to call who are likely to possess ESI, and the location of that ESI (e.g., laptops, wireless handheld devices);

• What types of computer systems (including e-mail, word processing and spreadsheet software) and other technologies the party uses that may have created documents relevant to the litigation; and

• Whether the party expects to claim that certain ESI relevant to the case is inaccessible due to the form in which it is maintained (e.g., disaster recovery backup tapes, legacy data).

The other pilot program would require an “Affirmation of E-Discovery Compliance” that would be jointly signed and certified by the lawyers for each party, and provide the court with three lists.

“The first list would contain those e-discovery matters, contained in Rule 8(b) or Rule 202.12(c)(3), which the parties were able to meet-and-confer about and resolve. The second list would contain similar matters that, despite meeting and conferring, the parties could not agree upon or resolve and that need the court’s involvement. The third list would be any additional issues that, because of the disagreements described in the second list, the parties could not yet reach and resolve. The document would also chronicle the parties’ attempts to meet-and-confer, and indicate whether, and to what extent, client personnel and IT specialists were involved.

While there are a few other minor suggestions, one of the most interesting is the shout out to the The Sedona Conference®.  The Report concludes that “judges and practitioners applauded the work of The Sedona Conference®, particularly its emphasis on changing the litigation culture and fostering dialogue, cooperation, and transparency in e-discovery.”  The Report recommends an appointment of a representative to The Sedona Conference® which despite the foregoing “should not be interpreted to mean that the court system necessarily endorses that organization’s work and proposals. Rather, the court system’s appointee would bring back materials for consideration here in New York, to be accepted, rejected, or modified, as appropriate.”

All in all, the New York state court appears to have taken a reasoned and measured approach to address their candid shortcomings.  This type of critical analysis should be taken by more jurisdictions to determine where process gaps still exist.  Only then can a better future state be divined.

While not quite rising to the level of the Tiger Woods affair, the 2008 Qualcomm v. Broadcom brouhaha was the leading electronic  discovery scandal for two years.  Finally, the other shoe has dropped and despite all the handwringing and speculation, nobody will be disbarred.  Even so, there are many lessons to be learned from this case, but first a quick summary of the latest ruling.

On appeal, United States Magistrate Judge Barbara Major provided a quick summary for those who haven’t been following the trials and tribulations closely.  During the initial hearings, Judge Major found that Qualcomm “intentionally withheld tens of thousands of documents” during discovery.  In reaching this conclusion she also stressed the “quantity of suppressed documents, the ease with which Qualcomm ultimately was able to locate the documents, the simplicity and relevancy of the search terms and search locations that led to the discovery of the documents, and the lack of evidence indicating that Qualcomm had engaged in any meaningful oversight of its document production.”

As to finding the scapegoats, and levying $8.5M in sanctions, Judge Major held that six attorneys assisted Qualcomm in withholding the critical documents by “failing to conduct a reasonable inquiry into the adequacy of Qualcomm’s document production.”  She specifically identified several inadequacies in Qualcomm’s document search, including “the failure to search the computers belonging to, or used by, deponents and trial witnesses, the failure to adequately investigate when significant, relevant, and unproduced documents were discovered, and the failure to ensure there was a legitimate factual basis for the legal arguments made to the Court before making them.”

After her initial sanctions order was set aside, on remand Judge Major provided the responding attorneys with “an almost unlimited opportunity to conduct discovery,” and during fifteen months, the parties undertook a massive discovery effort – including searching and reviewing over 1.6 million documents.  In resolving the Order to Show Cause, Judge Major reversed tracks despite concluding “this massive discovery failure resulted from significant mistakes, oversights, and miscommunication on the part of both outside counsel and Qualcomm employees.”  Yet, the testimony “also revealed that the Responding Attorneys made significant efforts to comply with their discovery obligations,” causing the Court to ultimately decline to sanction any of the Responding Attorneys.

Judge Major, in an effort to better educate the bar, goes on to detail some of the many electronic data discovery abuses. This provides a set of important lessons that for anyone in the practice of e-discovery:

1. “The fundamental problem in this case was an incredible breakdown in communication. The lack of meaningful communication permeated all of the relationships (amongst Qualcomm employees (including between Qualcomm engineers and in-house legal staff), between Qualcomm employees and outside legal counsel, and amongst outside counsel) and contributed to all of the other failures.” The communication issue has been raised by many including Judge Scheindlin (who quoted Cool Hand Luke) and is one of the many reasons that Sedona had pushed for more cooperation in the discovery process.  I cannot stress the important of transparent communication in the e-discovery process.  Not only is it mandated, it’s simply a wise practice.
2. “Moreover, outside counsel did not obtain sufficient information from any source to understand how Qualcomm’s computer system is organized: where emails are stored, how often and to what location laptops and personal computers are backed up, whether, when and under what circumstances data from laptops are copied into repositories, what type of information is contained within the various databases and repositories, what records are maintained regarding the search for, and collection of, documents for litigation, etc.” This failure too, first widely articulated in Zubulake V (and followed by Phoenix Four, Inc.,) requires counsel to discover all sources of relevant information involving substantial communicating with information technology personnel and key players in the litigation to understand how electronic information is stored.  Failure here (even absent spoliation) is grounds for sanctions.  See, In re A&M Fla. Props. II, LLC, 2010 WL 1418861 (Bankr. S.D.N.Y. Apr. 7, 2010)
3. “Finally, no attorney took supervisory responsibility for verifying that the necessary discovery had been conducted (including ensuring that all of the correct locations, servers, databases, repositories, and computers were correctly searched for potentially relevant documents) and that the resulting discovery supported the important legal arguments, claims, and defenses being presented to the court.” Where does the buck stop? It’s clear that a supervisory role with the proper experience in e-discovery is a critical component to an efficient and defensible e-discovery process.
4. Another factor that contributed to the discovery failure was a lack of agreement amongst the participants regarding responsibility for document collection and production. See previous comments about the importance of cooperation and communication.

So despite all those blunders Judge Major wasn’t able to find any evidence that the involved attorneys acted in bad faith, which allowed her to rationalize her change of heart.  But, if I were counsel reading the opinion I wouldn’t take this reversal as a license to conduct shoddy legal discovery because the bar (pun intended) is quickly rising such that missteps occurring two years ago probably won’t be tolerated today (see Judge Scheindlin’s latest opinion – Pension Committee).

Qualcomm is still a wake-up call, but just one that (fortunately for the involved attorneys) won’t end up an enduring disaster.

As a long-time reader of The Economist, I was excited to find that this week’s edition writes at length about the exponential growth in electronically stored information (ESI), and how people are using technology to manage it.  I believe this is one of the most significant “mega-trends” impacting our economy, and I was thrilled to see it recognized by a mainstream publication. But when I read the 14-page special report, I was disappointed to find that its analysis of the legal and regulatory implications of “the data deluge” is really weak.

The survey does a good job of teeing up the issue:

The world contains an unimaginably vast amount of digital information which is getting ever vaster ever more rapidly. This makes it possible to do many things that previously could not be done: spot business trends, prevent diseases, combat crime and so on. Managed well, the data can be used to unlock new sources of economic value, provide fresh insights into science and hold governments to account.

It goes on to talk about how companies like Walmart, which has 2.5 petabytes of point-of-sale transaction data, is using business intelligence software to analyze the 1 million transactions it does every hour. By doing so, Walmart is able to improve the efficiency of its supply chain and the effectiveness of its marketing. The article also describes how companies like Amazon and Google use web analytics software on click stream data to improve their services.

What’s missing is an equally intelligent analysis of the legal and regulatory implications of all this data. The move from paper to ESI (email and files) has created a user-generated, written record of everything that happens in a company. That’s incredibly helpful when, after the fact, questions or disputes arise. Rather than relying on incomplete recollections, courts and regulators can now consult a written record – one where every document is time-stamped and very often attached to a person’s name via email. That enables judges and regulators to get better information which, in turn, leads to better decisions. It’s hard to quantify the value of that, but there’s no doubt it’s substantial.

There is, however, a catch. Because the volume of ESI is so great, it’s really expensive to gather, sift through, and then produce information. Add the requirement that the process needs to be defensible (i.e., easily explained in court), and the whole thing gets really expensive really fast. Hence the need for electronic discovery software: it’s the only cost-effective way for companies to manage their ESI from a legal and regulatory perspective.

That’s why I believe e-discovery software will be as big a category as web analytics software or business intelligence software – it’s a different side to the same coin. Or, more specifically, a different dimension to managing digital information stores which, as The Economist points out, are growing tenfold every five years.

Update: Nick Patience at The 451 Group has also posted on this topic, at almost exactly the same time as me.